COINSPICE VENEZUELA — The president of Venezuela, Nicolas Maduro, announced a price increase for his country’s state-backed cryptocurrency, Petro, earlier this week. This, and while giving a speech where he detailed several new measures to mitigate the consequences of the raging inflation that Venezuela is having. However, this raised many concerns about the authenticity of the instrument as a cryptocurrency.
Venezuela President Increases Petro Price
The Petro, the official Venezuelan cryptocurrency, is facing an identity crisis according to several investors. All of this because president Nicolas Maduro announced a price increase of the cryptocurrency from 3,600 Sovereign Bolivars to 9,000 Sovereign Bolivars (the local fiat currency). This is a big increase of almost 200% in one swing.
If it is really a cryptocurrency, its price should be determined by market dynamics: supply and demand. Maduro has entrapped himself into an economics dynamics game that forced him to do so. The minimum wage in Venezuela is pegged to the value of the Petro, so he had to make that adjustment to raise the minimum wage.
However, while he adjusted the price in Sovereign Bolivars, the price in dollars remained the same. So, in practice, Maduro devalued the currency in front of the dollar to provide liquidity to the Venezuelan people.
Is the Petro Really a Cryptocurrency?
The Petro has carried a stigma since its inception. While now being officially accepted by the Constituent Assembly of Venezuela, it was first deemed illegal by the National Assembly and its lawmakers. That argued Venezuelan resources could not be associated with any structure without proper legislation. The Petro is backed by the country’s immense oil reserves.
Despite all this, the Petro is currently legal tender in Venezuela, supported in a recently approved law called “Cryptoassets Law” that regulates the interactions of cryptocurrencies in the country. But this action of Maduro raising the price of the Petro just by itself could be potentially disastrous for the already battered Venezuelan economy.
There are three very visible problems with these actions taken by Maduro: The first one, and the more evident, is the opportunity that this capacity brings for arbitrage and corruption. Insiders would benefit from an early announcement about a rise of this sort and millions can be made out of it. Luckily the Petro is not available in exchanges as of right now.
Second, every wage increase will also produce inflation and devaluation. Maduro cannot increase the price of the Petro in dollars, because the white paper states that this cryptocurrency is backed up by the value of real oil, and oil prices are at one of their lowest levels for the whole year.
Third and finally, this move has eroded the little trust that some acolytes had about the Petro being a real cryptocurrency. When prices are not determined by market dynamics, and they are dictated by people in power, there is something really strange. It certainly looks a lot more like a debt bond that will be used to sidestep USA sanctions, and less like a real, trading cryptocurrency.
CONTINUE THE SPICE and check out our piping hot YouTube channel. Our podcast, Milk, might help sooth that crypto burn. Follow CoinSpice on Twitter. Join our Telegram feed to make sure you never miss a post. Drop some BCH at the merch shop — we’ve got some spicy shirts for men and women. Don’t forget to help spread the word about CoinSpice on social media.