Tag Archives: Bitcoin

The Venezuelan Bolivar: One Reason I’m a Crypto-believer

Among the reasons that I’m a believer in the long-term potential of cryptocurrencies is the story of the Venezuelan Bolivar.  Venezuela is my wife’s homeland, so it’s something I’ve been aware of for many years – since well before the dawn of cryptocurrency.  In fact, when I first heard about Bitcoin, this is one of the first use cases that came to mind – a replacement option for countries with failed currencies.

I ran across a few Venezuelan bills that we have from trips over the years.   Especially for us with a Dollar/Euro/other-major-curency perspective, they serve as a  good reminder of the massive demand in countries like Venezuela where the official currency is horribly mismanaged.  I also think they are fascinating works of art, despite their negligible current value.

All but the largest 2,000B$ note are now out of circulation.   Late last year, the country rolled out a new 100,000B$ note.  The Venezuelan regime maintains some official exchange rates.  But, as with any pegged rate those don’t reflect the actual value of the currency.  The black market represents the real value, and people there keep track using sites like DollarToday and BolivarCucuta.  As of now, that rate is at around 240,000B$ per US dollar.  With Bitcoin around $8,700, the notes you see here would be worth:

  • 2,000B$ = $0.0083 (or just under 1 cent.) = ~96 Satoshi
  • 100B$ = $0.00042 (less than 1/10 of 1 cent) = ~5 Satoshi
  • 5B$ = 0.000021 (about 1/500 of a cent) = ~0.25 Satoshi
  • 2B$ = 0.000008 (just under 1/1000 of a cent) = ~0.1 Satoshi

The smallest two bills are worth less than the smallest possible division of a Bitcoin.  Those valuations may seem a bit funny, but it’s really a sad situation.  At one time these bills were “real money” that people depended on as a medium of exchange and a store of value (at least for the short-term.)  Now things are so bad that whenever Venezuelans receive payments of Bolivares, they rush to spend them as quickly as possible.  Even household goods like dried pasta and toilet paper are better stores of value than the Bolivar.

So, from the Venezuelan perspective the big fluctuations in Bitcoin’s price are not much of a worry.  That is especially true since Bitcoin has generally increased in value.  The Bolivar has done nothing but decline, and there is no reason to think that trend will ever reverse.  Instead, it seems more likely that the regime will keep printing more new bills with more zeros on them.   Dollars and Euros are probably still the first choices as safe havens for Venezuelans, but they are not easily available.  Cryptocurrencies represent an important new option for hedging against hyperinflation.

Speaking of “new options”, these bills also remind me of a cautionary lesson in this new world: not all cryptocurrencies are created equal. The crypto marketplace is filled with many poorly considered ideas and outright scams.  The case in point here is the Petro, which is brought to you by the same brain trust that managed this “Bolivar Fuerte” (“strong Bolivar”) from it’s launch in 2007 (done by removing 3 zeros from the “weak Bolivar”) through a 99.9991% decline in value over the last 10 years.  Since it’s a high-profile cryptocurrency launch, I wouldn’t be shocked if the Petro shoots up after its initial offering.  But, I’d give it’s long-term chances of delivering value at about the same as I give these elegant pieces of worthless paper.

Crypto Crash Flashback

With all the crypto market turmoil, I decided to take a look back at the last big crash which happened at the end of 2013.  That crash, along with the news around the seizure of the Silk Road and the collapse of Mt. Gox were what finally drew my attention to Bitcoin, blockchains and cryptocurrencies.

I shared these on Twitter and elsewhere, but thought I’d put them in my blog and perhaps update as things progress with the current market correction.  Comments are welcome.

Here is what the correction looked like on the way down.  Notice that there were several big swings on the way down that raised a lot of false hopes.  In the end, it took almost two years for the market to find a bottom point.

From there, the recovery was mostly steady but with plenty of drama along the way.  Finally, about 3 years after the 2013 peak, bitcoin took three tries over three months to finally hold prices above $1100 again.

From there, bitcoin and most other cryptocurrencies went on a massive bull run that dwarfed the price action in the prior years.

You should be skeptical of anyone who seems certain about where we go from here.  Every correction is different, and the space has changed a lot in those four years.  But, it does seem possible that we are still in a downtrend and it may be a long time before we see steady gains again.