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Venezuela is an example of cryptocurrency adoption during an economic crisis. No other economy facing hyperinflation has come close to the South American nation in terms of GDP-adjusted activity on peer-to-peer cryptocurrency exchanges, according to a new analysis by CoinDesk Research of data from LocalBitcoins and Paxful, the two most large exchanges of this type.
Previous reports from CoinDesk have shown that, amid government bans on the platform and Venezuelans’ discomfort with foreign crypto hedging, peer-to-peer (P2P) transactions remain at the heart of the country’s burgeoning crypto scene. In general, Venezuelans cite a combination of factors for the rise of cryptocurrencies including migration, capital controls, risk of government seizure, demand for strong money, and exposure to petro, the government-backed cryptocurrency.
Whatever the root cause, the data indicates that unique factors could be driving bitcoin adoption in Venezuela, which is far outpacing adoption in countries experiencing similar economic fallout.
The map above shows a view from LocalBitcoins CoinDesk’s GDP-adjusted database and Paxful volume by currency. Venezuela’s dominance is evident.
Other GDP-adjusted analyzes of peer-to-peer bitcoin trading volumes, like this one from analyst Matt Ahlborg, ruled out Paxful, which has become an important platform. In this data visualization from CoinDesk, we include both LocalBitcoins and Paxful data and adjust to GDP. Peer-to-peer activity in Venezuela continued to dominate, with a monthly level at least double that of the next market, Nigeria. Paxful’s exit from Venezuela is imminent, but its growth in other parts of the world makes it an important analytical component looking at peer-to-peer crypto trading on a global scale.
Peer-to-peer crypto exchanges are often where people come to buy their first crypto assets, Ahlborg said in the same analysis, and so their businesses can describe how the crypto asset is adopted at the grassroots level. more truthfully than larger exchanges that are set up ready for speculative and hectic trading.
In general, this is true in Venezuela. Expats use bitcoin to send remittances home, where locals convert it into bolivars to buy food and pay bills. With expatriate cryptocurrency remittances plummeting, peer-to-peer cryptocurrency transactions within the country have proven resilient. LocalBitcoins and Paxful exchanges using bolivars peaked in the first half of 2019 and have hovered around $ 20 million since then.
The continued high volumes are driven by the demand for bitcoin from companies, according to Gabriel Jiménez, a Venezuelan blockchain entrepreneur who led the development of the petro. Venezuelan companies often use bitcoin as a means of obtaining foreign currencies such as the dollar, he said.
Read More: Here in Venezuela, doctors struggle to access aid from the crypto platform
However, other countries that also suffer from hyperinflation have not come close to Venezuela in peer-to-peer bitcoin business. Of the 10 economies with the highest annual inflation rates since 2017, according to International Monetary Fund data, only Venezuela, Argentina and Iran have shown significant peer-to-peer bitcoin market activity, and none come close to. Venezuela by size or texture. Venezuela’s peer-to-peer bitcoin activity was extraordinary, measured as either absolute or relative to GDP.
What sets Venezuela apart may be government support for a digital currency. The petro helped ease Venezuelans’ fear of dealing with services like LocalBitcoins, Jiménez said.
Some high-inflation countries have moved in the opposite direction. The government of Zimbabwe, where the two largest peer-to-peer bitcoin exchanges showed zero activity, has made efforts to curb cryptocurrency adoption.
There are other factors: Venezuela’s inflation rate is measured by the International Monetary Fund at orders of magnitude higher than any other economy in the top five for annual inflation rates. It reached 65,374% in 2018. The next highest inflation rate recorded by the IMF in the past three years is in Zimbabwe, where it is projected to reach 319% in 2020.
“The people living in Venezuela live under a very unstable and predatory government. They suffer from extreme inflation and general economic instability. And here’s a censorship-resistant, inflation-proof asset, so it’s very attractive to people looking for a way to hold value, “said Andrea O’Sullivan, director of technology and innovation at the James Madison Institute, a Washington think tank.
Peer-to-peer exchanges vs. centralized
According to Jiménez, Venezuelans prefer peer-to-peer exchanges also because they are better than other alternatives. Centralized services, for example, have lower liquidity and less developed trading capabilities due to the lack of services from Venezuelan banks.
The early bird factor is yet another reason. LocalBitcoins became such a popular exchange in Venezuela not only because it was inexpensive, but also because it was the first thing available to Venetians as soon as governmental normalization of cryptocurrencies was in the air around 2017, Jiménez added. Veteran LocalBitcoins traders have their ratings, number of successful trades and years of experience visible on their profile pages, which attracts and maintains customer loyalty to them and, in turn, the loyalty of both. leave to the platform.
Read more: Venezuela launches Ethereum-based stock exchange to avoid US sanctions
In contrast, Paxful plans to enter the market by the end of 2018, and research from CoinDesk shows that bolivar-bitcoin trades on the platform amounted to only less than 1% of their LocalBitcoins counterparts in terms of monthly volume.
Still, even if it is expected cease all operations in Venezuela due to heavy US sanctions against the country, Paxful is on the rise. In July, trading involving bolivars doubled in June volume, breaking above the $ 100,000 line for the first time since the currency was reissued in August 2018, research shows. The exchange is also experiencing explosive growth in Nigeria, Ghana and Kenya.
People living in Venezuela suffer from extreme inflation and general economic instability. And here’s a censorship-resistant and inflation-proof resource, so it’s very attractive to people looking for a way to hold value.
That said, Paxful’s monthly volume in each of these countries represented only half of LocalBitcoins’ growth in Venezuela, as our data visualization shows. Peer-to-peer activity continues to be the most dominant in Venezuela, where it is used to circumvent government restrictions and obtain foreign fiat.
It’s possible that, as Jiménez suggested, Venezuela’s peer-to-peer bitcoin business wouldn’t be where it is today without crypto-friendly initiatives from the government itself. It is also possible that bitcoin adoption in Venezuela may be driven by Venezuela’s sheer hyperinflation rate, which outpaces other economies in crisis. As real-world uses of bitcoin continue to crystallize, other factors may emerge as drivers of its adoption.
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