Daily Bit #160: Bolivard of Broken Dreams
By: Daily Bit
Tags: Blockchain, Cryptocurrency, Crypto, Venezuela, Bitcoin

*Full post available at The Daily Bit.

Word On The Street

Bolivard of Broken Dreams

If you Google “sovereign”, this definition pops up in the Dictionary:

Sov·er·eign. /ˈsäv(ə)rən/ adjective: Possessing supreme or ultimate power.

Today is a historic day in the troubled country of Venezuela. For the first time, a cryptocurrency will serve as the underlying peg to a country’s state-issued currency.

According to ZeroHedge, Venezuelan President Maduro is calling the currency the “sovereign bolivar.” But after reading Google’s search result, we aren’t convinced by the ‘sovereign’ part — what power can we possibly expect the petro-backed currency to have?

Venezuela’s Hyperinflation is off the charts.

And Maduro letting the petro take the wheel has only aggravated those numbers. The jump-off led to a devastating 95% devaluation of Venezuela’s official exchange rate, along with a 3,000% minimum wages hike, higher taxes, and even higher gas prices.

*Image Copyright Reuters

It’s caused the bolivar to go to, well…. you get the drift. Reuters reports that a single roll of TP costs 2.6 million bolivars. And other consumer goods demand similarly sized cauldrons of cash.

On Friday, one kilogram of each demanded:

Tomatoes: 5 million bolivares

Cheese: 7.5 million bolivares

Carrots: 3 million bolivares

But, that data is outdated — it’s Monday. With prices doubling every several days, Venezuelan citizens are cleaning out convenience stores ASAP to make use of the little purchasing power they still have.

How bad is it? The IMF marked South Sudan and Argentina as the countries with the 2nd (104.1%) and 3rd (22.7%) highest annual projected inflation changes back in April 2018. Venezuela, by comparison, sat in a league of its own at a startling 13,860%.

Annual inflation estimates are shooting up:

Why pour oil on a burning economy?

That answer is clear enough — Maduro wants Venezuela’s economy to step out from the shadow of Uncle Sam. As Maduro aptly noted, “They’ve dollarized our prices. I am petrolizing salaries and petrolizing prices.”

Here’s the problem: Folks don’t want petrolized salaries…. or prices. They want dollars — or Bitcoin. If you beg to differ, just peep the numbers. Venezuela’s over-the-counter Bitcoin trading volume has skyrocketed since the beginning of 2018.

OTC volume is rising in other emerging markets

Indian, Mexican, Turkish, and Argentine citizens are looking to hedge their bets against their national currencies as well (h/t BraveNewCoin). Emerging market economies (EMEs) are facing an uphill battle to repay USD-denominated loans from 2008 since (1) the 2018 dollar is much stronger, and (2) USD interest rates are higher… meaning more cash to cough up.

Is this a chance for crypto to show its splendor? That depends. Quite frankly, the Venezuelan crisis is above our paygrade — but we wonder how the petro could possibly do more good than harm.

For everything else, people are looking for a store of value. Bitcoin is seen as one option because of its low inflation rate. A similar avenue being explored are stablecoins like Tether (USDT). BraveNewCoin noted EMEs have been moving Tether’s needle.

After all… stablecoins hold firm to the dollar. Isn’t that a better option than watching your purchasing power go up in smoke?