The current socioeconomic crisis in Venezuela has reached historical proportions, due in no small part to recent mismanagement and abuses made by the country’s reigning government led by President Nicolás Maduro.
Now, the Maduro administration — which is under pressure economically and diplomatically because of international sanctions tied to the ongoing crisis — may be on the verge of turning to bitcoin (BTC) and ether (ETH), the cryptoeconomy’s two most popular assets, to fatten its dwindling foreign reserves.
If actually done, the move would be another unprecedented development spurred on by the Venezuela crisis, so let there be no illusions in this case. The increasingly alientated President Maduro will only move forward with the idea if he concludes it will bolster his regime further, and he may well do so — even if the boost the pivot brings is only temporary.
What We Know For Now
Word of Maduro’s consideration comes per a September 26th Bloomberg report, wherein a handful of sources close to the matter said employees at Venezuela’s central bank were studying how the institution could go about counting bitcoin and ether toward its foreign reserves.
Such reserves, which are typically cash or other assets, are used by central banks to balance the payments of a nation. Venezuela’s current foreign reserve holdings are now below $8 billion USD, a level not seen since the 1980s.
The consideration of BTC and ETH comes on the heels of state-owned oil and natural gas company Petroleos de Venezuela SA (PDVSA) asking the nation’s central bank to look into the possibility of using them.
According to the sources Bloomberg spoke with, the company is interested in paying its suppliers with the cryptocurrencies after having become almost totally cut off from mainstream banks, and thus mainstream cash flows. It’s not presently known how the energy firm came into possession of its reported cryptocurrency holdings or how big these holdings are.
Prompted by the PDVSA request, the country’s central bank has already started testing how using bitcoin and ether in its international reserves might work.
It Would Be History, But With a Price
If a stable global power like Germany or Japan were among the firsts to embrace bitcoin and ether in their foreign reserves, cryptocurrency proponents would celebrate for months.
The reality that Venezuela might be the first to do so is notable in the sense that it could forebode that more countries — maybe even ones that are not crisis-driven — may eventually come around to using cryptocurrencies in their reserves, too. But the current Venezuelan government would only do so in response to a domestic catastrophe that has already caused tremendous suffering and many lives.
Think it was more likely that not rogue nation under sanctions would be first to adopt crypto as a reserve. It takes a lot more to get nations that trust the system as it is to make that leap from what they know.
— Maya Zehavi (@mayazi) September 26, 2019
But Venezuela is currently in the throngs of a tyrannical regime, and this regime may end up turning to bitcoin and ether mainly because these are the two most popular blockchain projects right now. They offer a new kind of public infrastructure that is neutral and is usable by anyone, a natural extension of the internet.
In this sense, these systems are for both the weak and the powerful, just like how fiat currencies of all stripes are used today.
If you can block a dictator from using bitcoin then you can block a refugee.
Bitcoin is for everyone. No permission required.
— Matt Odell (@matt_odell) September 26, 2019
Venezuela’s Holdings Likely From Corruption
Those with firsthand experiences in Venezuela will tell you that the government’s cryptocurrency holdings there are derived from corrupt mining activities, i.e. through equipment seized from citizens.
How Venezuela came to own Bitcoin or Ethereum? The Bloomberg article didn't say. But you can ask any Venezuelan: The corrupt goverment officials mined crypto with seized and stolen equipment, now they find themselves with coins they cannot exchange. 1/3
— ⚡🇦🇷Eduardo🇻🇪⚡ (@Codiox) September 26, 2019
That would explain why the PDVSA has enough BTC and ETH to have asked for permission to start using it with the government’s grace and within its purview. But we won’t know for sure until analysts can track down the company’s actual addresses. They are out there now, simply waiting to be found.