TL;DR: Letters from Venezuela is an exclusive CoinSpice series, documenting the South American nation’s last stand among sanctions, political unrest, international condemnation and concern, economic collapse, and the spectre of cryptocurrency possibly demonstrating its main use case. This letter looks into how the country has, yet again, broken their own trading records, with more than 2,000 bitcoin being traded during in one week on LocalBitcoins. No longer just a store of value, Venezuelans are taking advantage of arbitrage opportunities.
Venezuela Breaking Bitcoin Trading Records
Venezuela, a country facing an enormous political turmoil, has broken again bitcoin trading records, according to numbers from Coin Dance, a statistics portal. While the situation in Venezuela is not very encouraging, having two presidents (Maduro and Guaido) who are struggling to grasp political leadership, it has not stopped the crypto-economy.
2,004 bitcoins were traded last week, an amount that breaks the highest amount of bitcoins traded in a week (1,974). But this time there are more reasons than just to conserve a store of value and to protect from the raging devaluation that the local currency, the sovereign bolivar, is experiencing now.
The government has opened the market, and is now buying as many dollars as it can at sky-high rates, and there are real and juicy arbitrage opportunities for traders willing to take the risk of selling their dollars to the government for a premium, and reinvesting these dollars by purchasing bitcoins for a significantly lower cost.
Arbitrage During the Venezuelan Crisis
For those who don’t know, arbitrage, according to Investopedia, “is the simultaneous purchase and sale of an asset to profit from an imbalance in the price.” This lets people buy a cheaper good in a market, and sell it in other markets to make a profit, and this is what is happening in the Venezuelan bitcoin market right now, and why this week’s records could also be broken again shortly in the future.
However, bitcoin here is a vehicle for Venezuelans to get to dollars, the de facto currency being handled for purchases and sales of cars, houses, and other goods. The government, having a firm exchange control over the dollar price, has set up a pretty high price for the dollar (3,200 sovereigns), that entices people to sell their dollars through the designated exchange houses.
However, bitcoin prices in Venezuela, normally trading at a premium, have come down, reaching to a price per dollar of almost 2,400 sovereigns, comparatively lower to what the government is paying. So traders who have a foreign bank account are cycling their money by selling their dollars to the government, and buying bitcoin with the sovereign bolivars obtained, using exchanges with crypto-to-fiat bridges to exchange their bitcoin for dollars again.
This does make sense for traders. However, there is a new cryptocurrency law now stating every trader or business accepting cryptocurrencies must be registered on the national crypto assets superintendence (SUNACRIP), a potential to impact such trading negatively.
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