LocalBitcoins volume in Venezuela reaches all-time highs


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QUICK TAKE

  • The weekly traded volume on LocalBitcoins in Venezuela hit all-time highs this week as it reached a USD equivalent of $9 million
  • One of Bitcoin’s most important qualities is an inflation hedge useful primarily in countries suffering from irresponsible monetary and fiscal policy
  • Venezuela is the only country where there is a correlation between the increasing inflation rate and increasing traded volume on LocalBitcoins

Arguably, one of Bitcoin’s most important qualities is an inflation hedge useful primarily in countries suffering from irresponsible monetary and fiscal policy. While gold has been a more reliable store of value last year, Bitcoin is more portable, divisible and much harder to be confiscated by an authoritarian regime.

There were at least seven countries in 2018 where the annual inflation rate reached more than 20 percent.

Source: Trading Economics

The highest inflation by far is being experienced in Venezuela where prices double every 19 days. The annual inflation rate is now approximately 1,300,000 percent, while the International Monetary Fund (IMF) projects it might spike to 10,000,000 percent in 2019 – similar to events that transpired in Germany during the 1920s and Zimbabwe in the 2000s.

As inflation keeps increasing with no end in sight, there is clear evidence that volume on LocalBitcoins, the largest peer-to-peer (P2P) escrow service, is growing as well. The weekly traded volume on LocalBitcoins in Venezuela reached all-time highs this week as it surpassed a USD equivalent of $9 million.

Just as the country recorded its highest P2P traded volume, the Venezuelan government introduced regulations for remittances in cryptocurrencies. The government will now attempt to tax sending and receiving cryptocurrencies a minimum of €0.25 and maximum of 15 percent. What remains to be seen is how Venezuela plans to enforce such taxation of public cryptocurrencies such as bitcoin or ether where it’s nearly impossible to determine the location of the sender or receiver.

Source: Coin Dance

Source: Coin Dance

Argentina is currently suffering from the second highest inflation of 47 percent and while the traded volume on LocalBitcoins has experienced growth, it’s fairly insignificant compared to Venezuela. The weekly traded volume reached a USD equivalent of $230,000.

Source: Coin Dance

Three other countries that have LocalBitcoins data available and are experiencing high levels of inflation are Egypt, Iran and Turkey. In Egypt, the primary Islamic legislator has issued a religious decree classifying transactions in bitcoin prohibited under Islamic law. Iran had banned financial institutions and individuals from dealing with cryptocurrencies in April 2018. In January 2019, the central bank reversed the ban while still imposing restrictions. As a result of the regulatory pressure, both countries have had very low traded volume (as seen below). The weekly volume is hovering around $20,000 in Egypt and $120,000 in Iran.

Source: Coin Dance

Source: Coin Dance

The LocalBitcoins traded volume in Turkey has followed a similar trend as it crashed from its highs to early 2017 levels. Bitcoin is legal and regulated in Turkey and the centralized infrastructure is well-developed compared to other high-inflation countries.

Source: Coin Dance

Ultimately, Venezuela is the only country where there is a correlation between the increasing inflation rate and increasing traded volume on LocalBitcoins. To be fair, none of the other comparison countries are experiencing inflation of more than 50 percent. What’s also worth noting is that in 2018, bitcoin’s inflation in terms of USD was much higher than inflationary currencies other than the Venezuelan bolívar.

As Bitcoin’s price fell from $14,000 to below $4,000 in 2018, its annual inflation in terms of USD was approximately 270 percent, meaning that even the inflationary currencies held value better than bitcoin for the year. This was, of course, not the case in 2017 and in many previous years. The value of holding bitcoin in authoritarian regimes is derived at least in part from censorship resistance and its inability to be seized.

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