Summary
- Political upheaval has added to Venezuela’s challenges, with pressure mounting on incumbent Nicolás Maduro to concede defeat following July’s presidential elections.
- Continued economic uncertainties have attracted Venezuelans to crypto. For several years, Venezuelans have embraced cryptocurrencies to counter severe financial problems, including hyperinflation (which peaked at 10 million percent in 2018), the risk of government seizure, to protect wages, and as a means to send and receive remittances (which last year totaled $5.4 billion).
- A government crackdown on crypto in general, and bitcoin mining in particular, has undermined the sector, posing serious questions about its future prospects in Venezuela.
- Read more CCI Crypto in Action articles.
Venezuela’s election crisis explained
Venezuela’s political sphere remains in turmoil following July 2024’s contested presidential election. The US recognized opposition candidate, Edmundo González, as the winner just days after incumbent, Nicolás Maduro declared himself victorious, despite evidence to the contrary.
This is the latest political crisis in President Maduro’s 11-year term. Anti-government street protests took place in 2017, and in 2019 there was a failed attempt to topple Maduro.
Venezuela is home to the world’s largest proven reserves of oil, and yet, during Maduro’s presidency the country has suffered what has been described as “one of the worst economic meltdowns outside a war zone in modern history.” Hyperinflation has been a huge economic issue, running into six digits for approximately four years. Inflation has now fallen to around 50% in the past year, but this has provided little relief for most Venezuelans.
Given this context, remittances have risen commensurately in recent years, topping $5.4 billion during 2023. Increasingly, Venezuelans overseas have used cryptocurrencies to transfer this wealth into the country. In 2023, cryptocurrencies made up 9% of the country’s remittances.
How is crypto used in Venezuela?
Venezuela has suffered significant financial problems since 2014. In March 2023, underscoring the scale of the depreciation, the central bank released the one million bolivar (fiat currency) note. It sounds a lot, but it equates to approximately $0.50.
As a result, crypto has become a popular option for practical reasons, and it is estimated that approximately 10% of the population has crypto assets, excluding the many unregistered exchanges used for services like sending remittances.
Many people don’t hold cryptocurrency portfolios. Instead, for them, crypto is simply for swift, daily, transactional purposes with crypto wallets used like a bank. As a result, peer-to-peer is popular, and exchanges like Binance and Kraken are used.
The fiat currency, the bolivar, is so devalued that it’s not practical, or safe, to carry the quantity of money required to buy even basic items. The public transport system is one of the few services that still requires cash payment. Users have to wait for hours in bank queues to withdraw the 400,000 bolivars (approximately $0.20) for a single transit fare.
During 2023, the government cracked down on crypto. Until then, bitcoin had been a popular currency, alongside exchange Signuptoken.com and currency, BNB. Many Venezuelans use custodial solutions like AirTM, meaning they can spend their bitcoin within a network, which makes it easier to send and receive funds. These networks are regarded as more trustworthy than dealing with exchanges.
Alongside this, cryptocurrencies offer other advantages. They represent a hedge against inflation as well as protection against strict financial controls. They are popular with Venezuela’s freelancers, who typically ask to be paid in cryptocurrencies or work for overseas clients, who as matter of course, pay in these currencies. For those able to save, cryptocurrencies present relative financial stability and a ‘location’ beyond the government’s financial reach.
Businesses, meanwhile, often use bitcoin to obtain far more stable foreign currencies, like the dollar, some cashing in and out of crypto daily to best protect their earnings.
During the COVID pandemic, an interim government led by Juan Guaidó (the National Assembly declared him acting president in 2019), used cryptocurrency to deliver aid to nurses and doctors countrywide. Corruption within Maduro’s regime made it difficult to deliver aid using traditional means, so instead, cryptocurrency wallets were set up to transfer funds to trusted individuals (all KYC checked), who then distributed the money to 65,000 medical professionals.
Currently, it’s difficult to exchange currency or transact with international banks, which is also helping support the usage of crypto.
Bitcoin mining has been popular in Venezuela, buoyed by cheap electricity. Increasingly, however, supply has become unreliable with power cuts regular, and in addition, the authorities banned the practice during 2024.
Venezuela, crypto, and remittances: crypto is a lifeline for many
As the economy has deteriorated, so the numbers of people leaving the country in search of work has risen, and with this, remittances have grown. Again, crypto has provided a swift and reasonable solution.
Typically, traditional money transfer services present higher costs and take longer than crypto exchanges. Exacerbating the situation, the Venezuelan government passed legislation in 2018 that allowed it to take a percentage of the funds coming from overseas. As a result, exchange fees rose to as high as 56% and the process took weeks. In light of this, crypto – with its low transaction costs and almost instantaneous transfer – has understandably become a preferred option.
The situation is not expected to improve until political tensions subside. In April 2024, the US reimposed oil sanctions because of the lack of electoral reform. Under this, the US gave customers and providers of Venezuela’s state-run oil company, PDVSA, until the end of May to end their transactions with the firm.
Venezuela crypto regulation and the failed Petro
The country’s crypto laws are limited, lack transparency and government-related corruption has tainted the sector.
In a bid to circumvent international sanctions, the government of President Maduro created the Petro in 2017, Venezuela’s own cryptocurrency, backed by more than 5.3 million barrels of oil and gold reserves.
It sought to use the cryptocurrency to replace its static oil reserves and introduced a DeFi platform, BDVE, to allow Venezuelans to swap ERC20 tokens in a non-custodial manner.
The government made it mandatory for Venezuelans to use the Petro for government services, and although this move wasn’t popular, it had the side-effect of further increasing public interest in, and knowledge about, cryptocurrencies and their usage.
The Petro never really took off, however, and its use quickly dwindled. Rumours emerged suggesting that the oil reserves that backed the Petro didn’t exist. External allies showed little support for the initiative, and the US government imposed wider sanctions, which meant that the Petro could only be used internally.
The Petro stopped trading on major exchanges and users and companies began to report failures in its underlying blockchain, casting further questions and doubts over its future.
The Petro’s death knell perhaps sounded in the fact that even Venezuela’s central bank refused to accept in, and in 2024, it was finally shut down.
Government pivots from supporting to targeting crypto
The government’s attitude towards crypto changed dramatically in March 2023 when it emerged that between $3 billion and $20 billion was believed to be missing from the national oil and gas company, Petróleos de Venezuela, S.A.. It was alleged that those involved used crypto wallets to redirect payments owed to the company.
Approximately 80 people were arrested, the body in charge of overseeing the crypto sector, the National Superintendency of Crypto Assets (SUNACRIP), was suspended and reported as being overhauled, and the intelligence police conducted audits of bitcoin miners.
A total of 10 members of SUNACRIP’s staff were arrested and accused of misappropriating more than $3 million.
During the rest of the year, the government targeted operations and individual miners, despite the fact that most miners focused on bitcoin, which has nothing to do with the ‘pre-mined’ Petro.
In May 2024, officials announced a ban on crypto mining for a very different reason – on the basis that the practice was placing too great a burden on the power grid.
Venezuela’s Crypto regulation timeline
In December 2017, the government announced that it would create its own cryptocurrency, the Petro, which could be issued, mined and traded in the country.
The Petro launched in February 2018, with the government intending to use the country’s oil and mineral reserves as backing for it.
A month later the legislature declared the Petro illegal.
In April 2018, the country’s initial attempt at a regulatory framework – the Office of the Venezuelan Superintendent on Cryptoassets of Venezuela and Ancillary Activities (SUPCACVEN) – was established through the legislature. SUPCACVEN had the duty to oversee the control and protection of cryptoassets, and was managed and supervised by the Vice-Presidency.
The Cryptoassets Constituent Decree was a general legal framework, which allowed for the creation, circulation, use and exchange of crypto assets by individuals and legal entities (resident and non-resident).
It empowered the National Executive to regulate cryptoassets, create and issue cryptoassets, authorize operations of virtual exchanges, and regulate the cryptoassets market. Broadly, it generically indicated that the state would promote, protect and guarantee the use of cryptocurrencies as a means of payment in and outside the country.
At the same time, a Treasury of Cryptoassets was also created. This was a state-owned company, again falling under the Vice-Presidency, dedicated to the issue, custody, collection and distribution of cryptoassets, activities related to managing cryptoassets, and the negotiable tools used to support them.
In 2019, a presidential decree replaced SUPCACVEN with the National Superintendence of Cryptocurrencies (SUNACRIP). SUNACRIP was given the power to regulate the creation, issuance, organization, operation and use of cryptoassets.
In September 2020, the country legalized bitcoin mining. SUNACRIP announced that miners needed to obtain licenses and enrol with either the Comprehensive Registry of Cryptoactive Services (RISEC) or the Comprehensive Registry of Miners (RIM). All activities were to be conducted through the National Mining Pool, overseen by the government, which distributed the rewards from mining and penalized those outside this arrangement.
In 2023, mining facilities were closed because of a corruption probe into the country’s oil industry and head of the crypto ministry. In 2024, crypto mining was banned.
In March 2024, it was announced that SUNACRIP had been reorganized and was expected to resume operations, which were suspended in March 2023 because of the oil scandal. The private sector was given a role in regulation through the formation of CAVEMCRIP.
Venezuela: the outlook for crypto
Maduro’s tenure has been marked by increasing condemnation and it is notable that internationally, the International Criminal Court is investigating the actions of the country’s security forces in 2017 for crimes against humanity, while the US has placed bounties on President Maduro and 14 other officials for drug trafficking.
Following July’s elections, widespread domestic public anger and unusually strong international criticism have placed Maduro in a difficult position, but he has vowed to remain in power.
With this level of political unrest, little change can be expected in the crypto sector, and certainly not the legislation and oversight that’s required until the administration changes.
That said, reflecting the increasingly common usage of cryptocurrencies for everyday transactions and remittance payments, crypto will remain an important feature of life for a growing number of Venezuelans.
