Key facts: Venezuela, with the worst hyperinflation in Latin America, saw bitcoin as a way out. With dollars and cryptocurrencies, Venezuelans are looking for new paths to financial stability. Venezuela's rate of hyperinflation has been recorded as the worst in the history of Latin America. In the country, for years, hopelessness reigned, until bitcoin (BTC) emerged as a viable alternative for many, offering Venezuelans not only a means to survive, but also an open door to new opportunities. The International Monetary Fund (IMF) projected for 2021 an inflation of 5,500% and by then the country had already been in crisis for several years due to the exaggerated growth of the external debt without control since 2007, as well as the injection of inorganic money into the Venezuelan economy, as reflected in Wikipedia. The statistical data are alarming for an oil country. Now “Venezuela is the second poorest and most unequal country in Latin America,” according to what several media outlets have published. With hyperinflation and devaluation impacting the bolivar, the national currency, People's wages and savings collapsed in a matter of days. And in this context, many Venezuelans began to seek refuge in assets that were not subject to the whims of the State, and that is how bitcoin was presented as an attractive option.
Bitcoin is an asset that operates on a decentralized network, meaning that is not under the direct control of any governmentcentral bank or fiscal entity. For this reason, governments cannot use this digital currency to issue it at will, as is the case with fiat money. So much so that, in 2019, Venezuela came to record the second highest volume of global trade on the now defunct LocalBitcoins platform. At that time, the data indicated that bitcoin was the best protection against inflation for Venezuelans. Bitcoin showed Venezuelans that it was the best asset available to them. to preserve their capital. This was because it gave them access to a more stable financial system that was less susceptible to government manipulation.
Bitcoin adoption in Venezuela was highlighted in Chainalysis' 2021 report. Source: Chainalysis. As the government generated more unbacked monetary issuance, the use of bitcoin became increasingly common. The currency created by Satoshi Nakamoto also emerged as a solution for transfer money from abroad, pay for goods and services, and even make purchases of basic products. For many, this change is not only represented a way to maintain savingsbut also an opportunity to participate in a digital economy that seemed much more stable compared to the chaotic reality of his country.
Bitcoin resonates as a lifeline for Venezuela
After the hyperinflationary outbreak, the aftershocks of the crisis persist in daily life, with a structural distrust towards the bolivar. Venezuelans continue to search for the best alternatives to preserve their savings, and now the panorama becomes multi-currency, according to a study by the firm Ecoanalítica. With the consolidation of a de facto dollarization for regular transactions, the displacement of the bolivar reached deep levels in some areas. Now “the dollar occupies 32.7% of transactions, the Colombian peso 5.7%, the euro 5.5% and cryptocurrencies and others barely 1.2%”, according to what was analyzed until February 2024. However, Bitcoin is still on the radar of many Venezuelanseven more so now that opposition leader Maria Corina Machado has proposed bitcoin reserves to save Venezuela's economy. A similar proposal was also put forward by Donald Trump as a candidate for the upcoming US presidential election. The idea is to follow in the footsteps of El Salvador, a country that promotes the appreciation of its BTC reserves. In the same way, with the price of bitcoin on the rise, Venezuela's national reserves could acquire significant value in the long term, offering a potential source of income. And as it has worked for El Salvador, Venezuela can also attract foreign investment and foster the economy based on digital currency, turning the country into a new center of innovation in the region.