Bitcoin is working in Venezuela

The Bitcoin thesis asks you to believe some combination of the following:

  1. Humans will print more money whenever they can. They literally can’t help themselves.
  2. Inflation is a tool used by the wealthy to steal from the poor. The individuals who own the majority of assets pre-hyperinflation benefit the most from it. (This is why we tend to see hyperinflation in countries led by dictators).
  3. Hyperinflation rapidly devalues a currency and ultimately makes it worthless.
  4. Citizens lose confidence in a nation’s currency as it is devalued. They begin looking for alternative mediums of exchange or stores of value.
  5. The flight of capital from hyperinflation compounds the problem, which leads the elite to impose rules to prevent capital flight.
  6. A citizen’s loss of trust in their currency, plus their existing lack of trust in their government, will lead people to seek a currency that is decentralized, anonymous, transparent, deflationary, and unable to be seized.
  7. As more countries experience hyperinflation and/or economic chaos, citizens around the world will turn to Bitcoin as a superior store of value and medium of exchange.

The Bitcoin thesis is playing out perfectly in Venezuela. The country has experienced hyperinflation at a level we haven’t seen in decades. Experts estimate the current inflation to be 200,000%, which is having a direct impact on the lives of innocent civilians. Money has become worthless and some citizens would rather use the paper notes to create art, rather than continue to believe in the currency’s value as a medium of exchange.

As Larry Cermak of Diar Research points out, there is a direct correlation between the weekly trade volume on LocalBitcoins and the hyperinflation trend in Venezuela. The bolivar became hyperinflationary in November 2016. Since then, LocalBitcoins weekly volume has increased 1,250% from $230,000 to $3,100,000.

Venezuela’s transition to a non-sovereign backed currency is still in the early stages. It wouldn’t be surprising to see Iran, Zimbabwe, and other hyperinflation countries begin seeing a similar trend as well though.

We are slowly watching history unfold. The superior store of value is governed by code and math, rather than greedy humans.