CARACAS — Venezuela is back in the headlines again, but as usual it is largely being covered by outsiders, rather than by those inside the country. This coverage brings factual errors about what is really going on here, particularly when it comes to cryptocurrency. Venezuela, plagued by currency devaluation and political crisis, is often celebrated by the media and cryptocurrency projects as a kind of Bitcoin paradise. The reality on the ground is often quite different.
Let’s take a look at the latest example of this phenomenon.
On August 5, President Trump imposed new sanctions on the Venezuelan government. This latest round of sanctions freezes Venezuelan government assets in the U.S. and bans American companies from dealing with Venezuela. These sanctions are deepening Venezuela’s economic crisis by choking the state and hurting Venezuelan organizations, from private companies that use international suppliers to humanitarian NGOs with bank accounts in the United States.
But the sanctions also fit nicely into the “Bitcoin will save Venezuela” media narrative. Bitcoin, unlike an overseas bank account, is impossible to shut down. And sure enough, the day after Trump’s sanctions announcement, the media announced a surge in Venezuela’s peer-to-peer Bitcoin trade volume. “The United States’ hawkish move has been reflected in a new all-time-high for peer-to-peer trading volume on LOCALBITCOINS in the country,” CoinTelegraph reported. Other outlets ran a similar story.
It’s a sexy angle, but is it actually true? Are U.S. sanctions really causing a boom in Venezuela’s Bitcoin trade?
Not necessarily. One common mistake people make is measuring LocalBitcoins trade using the exchange rate in Venezuela Bolivars (VES). This can be misleading, because the VES is constantly devaluing against the dollar.
For example, on July 6, the exchange rate was 7,620 VES per dollar, but by August 6 it was 13,040 VES per dollar, according to yadio.io. So if a Venezuelan had traded $100 worth of Bitcoin on July 6, the trade volume in VES would be 762,000, whereas on August 6 the same exact trade has a trade volume of 1.3 million VES. This makes it look like there’s a significant increase in trade volume when there isn’t — the actual value of the trade is the same, and the apparent increase in volume is only due to the Venezuela Bolivar’s drop in USD value.
A better way to evaluate transaction volume is to use BTC. By that metric, LocalBitcoins volume recently fell in Venezuela, as LongHash has reported.
If we measure trade volume in BTC, it’s evident that not much has changed. The weekly trading volume has been hovering around 500 BTC all summer. During the week of July 6, for example, some 553 BTC moved through LocalBitcoins in Venezuela. In the week of August 6, when Trump announced the sanctions, just 481 BTC were traded (according to yadio.io and counting both weeks as Sunday to Saturday). And transaction volumes have dipped even further in the weeks since in BTC terms.
Of course we have to take into account the the price of USD/BTC, since markets are governed by this exchange rate. The average close price for the week of July 6 was $11,080 per BTC, whereas the average close price was $10,072 per BTC the week of August 3.
That’s a depreciation of 9%, which you would expect might lead to a corresponding increase in Bitcoin trading volume, since Venezuelans would need to trade more Bitcoin to reach the same amount of USD value. But as we’ve seen, no such increase occurred. In terms of both Bitcoins and USD value, Venezuelans are trading less Bitcoin since the sanctions, not more.
It’s worth noting, of course, that LocalBitcoins is not the only place where Venezuelans can get Bitcoins. If they have access to fiat currencies other than VES, then they have options like AirTM, Uphold, and other exchanges. If they want to trade Bitcoin they already own for other cryptocurrencies, they can use exchanges like Binance, Bittrex or Bitfinex.
However, the media reporting on this seems to be based almost entirely on Coin.dance’s reported Bitcoin trading volume in VES. Switch the chart to reflect actual BTC trade volumes, though, and the reported increase in volume vanishes.
This media misrepresentation of Venezuela’s booming Bitcoin trade reflects a much larger problem. It’s part of a narrative that overstates the importance of cryptocurrency in Venezuela.
Despite all the optimism of the cryptocurrency community, use of the U.S, dollar as an alternative currency is far more common than Bitcoin in Venezuela. There are plenty of dollars in Venezuela, as Venezuelans have long used the dollar as a way to store savings. All those dollars that were saved in Venezuela’s better years now seem to be circulating more widely in the country, both because of the hyper-devaluation of the Bolivar and the state legalizing money exchange operations. As Venezuelans continue to leave the country, many send USD remittances to their relatives who remain inside.
In fact, there are even Venezuelan stores that now price their products and services directly in USD, despite the fact that this was prohibited and punished.
It’s certainly true that in Venezuela there are people using Bitcoins for various purposes, including as a store of value, a means of exchange, or simply for trading. But Bitcoin is far from mass adoption in Venezuela, as I have written before, and there’s no evidence that sanctions are changing that.
Far more will turn to dollars, as inconvenient as they might be, to get through the ongoing economic crisis. This is simply because most people simply trust dollars more than Bitcoin. The dollar has been around a long time, has a stable value, and is much easier to use.
