Venezuela is the first country with a Fiat currency crisis at a time when Bitcoin is a real option

hyperinflation.png

TL:DR. When the government is guaranteed to rob you each and every day, it is worth taking bit of risk to exchange Fiat to Bitcoin in a dark alley using LocalBitcoins

This is an update to the chapter in The Blockchain Economy digital book entitled: Some Governments Want To Shut Down Bitcoin But They Don’t Know How.

This post covers

  • Hyperinflation robbery is not just yesterday’s news.

 

  • Watch what real people do, ignore governments flailing around.

 

  • Exchanging Fiat to Bitcoin in a dark alley using LocalBitcoins sounds scary unless the alternative is worse.

 

  • Bitcoin vs Altcoins in the market laboratory of Venezuela.

 

Hyperinflation robbery is not just yesterday’s news

Yes inflation is robbery. If it is still $1 it may sound good, but not if $1 buys what used to cost 10c.

There are 3 types of inflation:

  • Low enough to be considered “good inflation” by many economists – around 2-3% pa.

 

  • High enough to be a big concern – nudging 10% pa. It’s not hyperinflation, but could become so and nobody will trust it as a store of value (run the numbers over a few decades if you doubt this). Many countries including USA and UK have had this level of inflation and dealt with it by having high interest rates.

 

  • Crazy aka hyperinflation. Venezuela, sadly for its citizens, certainly qualifies.

Many countries have had hyperinflation – think Zimbabwe recently and Weimar Germany in the 1930s. Venezuela is the first country to suffer hyperinflation when Bitcoin is a real option (and is also a much bigger economy than Zimbabwe).

Watch what real people do, ignore governments flailing around.

Before Bitcoin, the classic policy response of a country with hyperinflation was to peg the local currency to USD. This is less of an option today for two reasons:

  • Governments that fear the US Government may feel more nervous about adopting the USD.
  • If Inflation is the problem, the currency that is the least inflationary looks best. So Bitcoin looks better than USD.

After Bitcoin, the policy response includes creating a Fiat Coin. The more formal name is Central Bank Digital Currency (CBDC), meaning Central Bank determines monetary policy but that currency is traded like Bitcoin.  This is lipstick on a pig. Fiat Coins are still not sound money, even if they sound cool and modern and give some incremental efficiency gains by using Blockchain.

Ignore these governments flailing around; that is not where the action is. Instead watch real people use Bitcoin to solve real problems in their lives. Those of us living in countries with a stable Fiat currency can only imagine the desperation caused by hyperinflation. If you think buying some Bitcoin will help feed you and your family, then buying some Bitcoin will get onto your Must Do Today A List.

The reality for the people is that if feeding you and your family is your concern, black market USD looks as good as black market Bitcoin. So people will use both. What is new is that Bitcoin is now an option alongside the USD.

BTW, “black market” is a pejorative term that only carries moral weight if the government is doing the right things for its citizens. Governments that allow hyperinflation forego such respect.

Exchanging Fiat to Bitcoin in a dark alley using LocalBitcoins sounds scary unless the alternative is worse

These traction numbers (from CoinDance) are enough to to make investors salivate. Data about Venezuelans trading in bolívar for Bitcoin on the LocalBitcoins exchange looks like a classic hockey stick – but this is not a business plan projection, this is actuals. 

 

Screen Shot 2019-03-05 at 07.21.48

I have never used LocalBitcoins, because it sounds a bit scary to my spoiled way of thinking. You can get robbed (before or after the transaction) and I am fortunate to have other safer options. If you live in a stable country you have two much safer alternatives:

  • For big sums you can use Brokers & Exchanges after going through some routine KYC.

Bitcoin vs Altcoins in the market laboratory of Venezuela

Venezuela is where some Altcoins will either emerge triumphant or be trampled by the growing might of Bitcoin.

Altcoins such as BitcoinCash (BCH) and Dash claim to be better than Bitcoin (BTC) for regular spending.  Venezuela is the market laboratory where we will soon know if this true. The market verdict is not yet out but early indications are:

  • BitcoinCash (BCH) does not seem to be getting much traction.

 

  • Dash is getting some traction but not as much as Bitcoin (BTC).

Image Source.

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is the author of The Blockchain Economy and CEO of Daily Fintech.

Check out our advisory services (how we pay for this free original research).

To schedule an hour of Bernard’s time for CHF380 please click here to send an email.

Leave a Reply