Venezuela, a country plagued by hyperinflation and authoritarianism, has often been hailed as an ideal candidate for the widespread adoption of national cryptocurrencies. The rationale behind this optimism has been the need for protection against the devaluing bolívar and an avenue to escape Nicolás Maduro’s authoritarian regime. However, recent data from Chainalysis suggests that Venezuela ranks fifth in the total cryptocurrency value received within the Latin American region and doesn’t even make the top 20 globally.
Chainalysis report shines light on dollar adoption in Venezuela
Chainalysis’ 2023 Global Cryptocurrency Adoption Index, which focused on Latin America, provided some insights into the situation in Venezuela. The report emphasized Venezuela’s “unique crypto utility,” given its challenging political context and the well-documented issue of hyperinflation. Javier Bastardo, the organizer of Satoshi in Venezuela, the country’s largest grassroots Bitcoin group, and Bitfinex’s Bitcoin ambassador to Latin America, doesn’t find these numbers surprising. According to him, Venezuelans are more interested in obtaining access to the global reserve currency, the U.S. dollar.
He asserts that the country has been moving towards a de facto dollarized economy internally for years. The narrative that hyperinflation would lead to a widespread shift to Bitcoin is, in his view, inaccurate. Bastardo has observed that people are more likely to use stablecoins before venturing into the world of the top cryptocurrency. However, Bastardo points out that stablecoins are likely seen as a transitional step in the Venezuelan quest for “real” U.S. dollars. This perspective aligns with that of Kevin Hernández, founder of the Venezuelan media outlet Criptodemia and author of “My First Days in Bitcoin.”
Hernández believes that Venezuelans aren’t particularly interested in cryptocurrencies themselves but are instead seeking access to U.S. dollars. He notes that the country’s economic uncertainty has increased the demand for “less friction” options, such as Zinli, which provides easy access to dollars. Chainalysis also highlights another factor that should drive the Venezuelan cryptocurrency economy: its authoritarian rule. The report suggests that crypto’s most unique use case in Venezuela lies in its ability to enable citizens to resist the oppression of the Maduro regime.
Centralized exchanges dominate the Latin American market
Opposition leader Leopoldo López attested to this, citing instances where crypto was used to provide financial aid to 65,000 doctors during the COVID-19 pandemic and as a tool of resistance against the regime. Both Bastardo and Hernández acknowledge that while crypto can serve as an alternative in an economy tightly controlled by the government, its actual usage by the population remains limited. Ultimately, their assertion remains the same: “People are just looking for dollars.” To emphasize this point, Bastardo highlights that 92.5% of individuals mentioned in Chainalysis’ report use centralized exchanges to access crypto.
While this may seem counterintuitive, he explains that people are primarily seeking a convenient method to access dollars. This high percentage of centralized exchange usage is part of a broader trend in Latin America, as revealed by Chainalysis. More than 60% of people in the region opt for centralized exchanges, compared to a 48% average worldwide. Jazmín Jorquera, the Chief Operations Officer for Buda.com, an exchange operating in several Latin American countries, isn’t surprised by these numbers. She notes that centralized exchanges offer a straightforward and reliable experience, better liquidity, and an essential trust factor. Jorquera highlights the general concerns about criminality in the continent, making platforms like peer-to-peer exchanges less appealing.
She underscores the aversion to carrying significant amounts of cash, particularly relevant in Venezuela, a country where citizens have been seen using piles of cash to pay for everyday expenses. Mexico stands as the exception to the dominance of centralized exchanges in the region, with usage slightly below the global average. According to Lorena Ortiz, the founder of the Bitcoin Embassy Bar in Mexico City and the community master for Fedi, Mexico’s burgeoning tech scene, tech-savvy youth, and the availability of diverse platforms catering to the country explain this deviation. Additionally, Mexico’s more favorable tax framework for cryptocurrencies, due to a lack of extensive regulations, makes centralized exchanges a preferable option for many.
