Venezuela launched its own cryptocurrency on February 20th, 2018. It is the world’s first ever state-backed cryptocurrency, with its new oil-backed Petro token. All this happens amidst an extreme economic crisis in the South American country, which many are construing as a desperate cash grab by a corrupt government in the midst of an ever-worsening economic meltdown.
The digital token, called Petro, will be, according to Venezuelan President Nicolas Madure, backed by one barrel of the country’s national petroleum.
100 million Petro tokens worth about $6 billion will be issued.
It actually sounds good on paper, but there is little reason to expect anything other than speculative gains and long-term failure from the oil-backed cryptocurrency.
This is a market mostly governed by trust. If there is no lost, the value of a cryptocurrency can easily move upwards to double its value multiple times in as little as a day. However, in this case there is barely a reason to trust the Venezuelan government.
Venezuela has been for the last four years the world’s most miserable economy. This is as a result of the country’s finances being crippled by international sanctions resulting from the crack down on domestic freedom by Maduro’s socialist regime.
CNBC noted that Venezuelan citizens are currently dealing with widespread food shortages in addition to hyperinflation, which is expected to hit 13,000 percent this year. This staggering hyperinflation levels has rendered the country’s traditional currency all but worthless.
Harry Colvin, the director and senior economist at Longview Economics tells CNBC that the chances of success for Petro are slim to none. “Venezuela has been known for misappropriation of assets in the past and the central bank has just created hyperinflation so I imagine there’ll be trust and transparency issues … If Maduro loses the election in April — or is forced out of power — then petros would probably be made illegitimate.”
Another reason for such a less confidence in the state-issued cryptocurrency is the fact that the oil supposed to back the tokens hasn’t even pumped yet, and the government isn’t in complete control of it all.
Some financial analysts have pointed out that Venezuela’s cryptocurrency experiment will be in no way similar to the Bitcoin. “There is no moon potential for the #petro. As a commodity backed currency, the best case scenario is that it remains with a stable price,” says Mati Greenspan.
For Maduro, as per his statement: “the future is now…Venezuela is moving forward as an economic powerhouse,” thinks his cryptocurrency will be a resounding success, in spite of the widespread cases of food shortages and a rapidly increasing unemployment rate.
By the end of its first day of trading, the President claimed that Petro raised $735 million. There is no way to independently verify this as at now.