Venezuela Currency Devalues 200% in 4 Days, Collects Taxes in Crypto

Venezuela Currency Devalues 200% in 4 Days, Collects Taxes in Crypto

The Venezuela economic crisis has intensified this last week, with inflation levels skyrocketing on the prices of foods and products. The market that defines the parallel cost of the US dollar has also shot up, with a growth of more than 100% in just four days, impacting buying power of Venezuelans by the hour.

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Venezuela Currency Demolished

The newly minted Venezuelan Sovereign Bolivar (VES) has suffered a value meltdown, making its price loss hundreds of percent in four days. This is likely the result of the growth in the price of bitcoin, a key asset to calculate the “parallel” or unofficial value of the US dollar in the black market. To understand the difficult and unusual way of determining this value, we need to explain Venezuelan currency markets are under an exchange control since the early 2000s. This means the government was able to dictate the exchange rate of the US dollar and enforce it.

Venezuela Currency Devalues 200% in 4 Days, Collects Taxes in Crypto

With the rise of cryptocurrencies, a new opening for exchanging dollars via virtual accounts away from the eyes of the government was born. Now, this is the preferred method to calculate the value of the dollar in Venezuela, and its value is several times greater than the government exchange rate. Right now, with the ongoing political crisis and the rise for demand of cryptocurrency by traders and holders, there is a national rise in the price of cryptocurrency, pushing the VES to 2,200 VES per dollar.

This indicates value of the VES has rose from 1,000 four days ago against the dollar to 2,200, more than 100% vs the price of the dollar, diluting buying power of Venezuelans.

Covert Prices in Dollars and Crypto

This has caused a new phenomenon in Venezuela, with stores not putting prices on goods and services due to price volatility: prices are set in dollars and store owners put prices in bolivares at the moment of the purchase. This was observed when going to several malls in the capital of the country.

Venezuela Currency Devalues 200% in 4 Days, Collects Taxes in Crypto

In the same way, some sellers preferred to be paid dollars in cash or Zelle transactions, a payment method gaining popularity, from Venezuelans out of the country and opening bank accounts in the USA. However, most of these sellers also accept cryptocurrencies as a payment form, but in a shadowy and not disclosed way. There are two reasons for this. One, with high crime rates no one wants to be seen exchanging physical dollars. Two, the government is now taxing crypto users in cryptocurrency or in dollars, something that might keep official cryptocurrency adoption from taking hold.

The government has also imposed a law whose objective is to force tax on those who use or accept cryptocurrency or foreign currency purchases or transfers. They must now pay taxes in the same currency in which they are dealing. Venezuelan receipts in cryptocurrency amounts are never shown when shopping, just their fiat equivalents.

The Future According to Shadow Brokers

CoinSpice contacted an important LocalBitcoins trader. For his safety and anonymity we will call him John. John detailed if the current state of event keeps happening, the rate will be about 4,000-5,000 VES to a dollar by the end of January. Whether bitcoin goes up or down, people look to maintain most of their savings in bitcoin or other cryptocurrencies instead of having it in bolivares, forcing price up for locals.

Venezuela Currency Devalues 200% in 4 Days, Collects Taxes in Crypto

He also talked about this new cryptocurrency tax and declared it to be a “way for the government to put a hand in the cryptocurrency exchanging market occurring behind closed doors.” John thinks this initiative could spur a trader witch hunt. In his opinion volatility in prices will continue all of this year, maybe seeing record values for bitcoin in VES.

He also stated this is a show of crypto strength, and it might be the first time cryptocurrencies determine, at least in part, the monetary and exchange dynamic of a country and a currency.

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