Venezuela To Launch Cryptocurrency Called ‘The Petro’, Maduro Declares

Stop the presses – literally in this case.

As you’re aware, Venezuela’s economy is collapsing. This pitiable spectacle has been a slow motion train wreck for years and it culminated last month in an announcement  by President Nicolas Maduro who, on November 2, said he would move to restructure the nation’s debt.

Maduro almost immediately moved to put Vice President Tareck El Aissami in charge of the restructuring effort. That was problematic because El Aissami is an OFAC-designated drug trafficker who, according to the U.S. Treasury, ran an operation that was responsible for moving “thousands” of kilos of coke. Needless to say, that put bondholders in a decidedly awkward position because, again according to the Treasury Department, dealing with El Aissami could land a corporate officer in prison for 30 years and that’s after paying up to $5 million dollars in “I talked to a drug lord” fines.

It was against that absurd backdrop that El Aissami called a truly farcical bondholder meeting in Caracas where the roughly 100 creditors who risked making the trip were served actual pancakes and given gift bags full of coffee and chocolate for their trouble. Unfortunately, all they got from El Aissami on the debt issue was a harangue about how the international community (and especially the U.S.) is conspiring against Maduro’s government.

Now, Maduro is in the middle of a pretty epic purge of high-ranking oil executives. “We have started a crusade against corruption,” Maduro said Friday on state TV, adding that there “are more than 100 PDVSA officials jailed on corruption charges.”

“The sense from Venezuelan watchers is that having successfully crushed the political opposition, Maduro is turning his attention to his enemies from within Chavismo as he prepares to run for re-election next year,” Bloomberg notes, in a piece documenting the plight of Rafael Ramirez, the embattled Venezuelan ambassador to the United Nations.

On November 26, Maduro named Manuel Quevedo as president of PDVSA and oil minister, a rather transparent move to curry favor with the military.

“It’s a complete gift to the military, in exchange for allowing Maduro to do as he pleases during the upcoming presidential election. I’m convinced of that,” Raul Gallegos, an analyst at Control Risks and author of Crude Nation, a book on the Venezuelan oil industry, told FT this week, adding that “It’s essentially given the military what they wanted: access to the richest economic activity in the country. And obviously that doesn’t come for free.”

Ok, so that’s a snapshot of the situation and as you can see, it’s pretty damn desperate.

As Reuters reported on Friday, “Venezuela’s money supply rose a whopping 14% in just one week last month, its steepest rise since records began in 1940.” On the black market, the dollar is up some 3,000% this year. Underscoring how out of control the situation is, Maduro unveiled a 100,000-bolivar denomination bill last month. It was worth less than $2.50 on the black market upon introduction.

One byproduct of the hyperinflationary environment has been a surge in Bitcoin mining.

Consider this from AFP out in late October:

Inside a locked room in an office building in Caracas, 20 humming computers use their data-crunching power to mine bitcoins, an increasingly popular tool in the fight against Venezuela’s hyperinflation.

[…]

While practiced worldwide, Bitcoin mining is part of a growing, underground effort in Venezuela to escape the worst effects of a crippling economic and political crisis and runaway inflation that the IMF says could reach 720 percent this year.

Having no confidence in the bolivar and struggling to find dollars, many Venezuelans, who are neither computer geeks nor financial wizards, are relying on the bitcoin.

[…]

Bitcoin mining consultant Randy Brito estimates that about 100,000 Venezuelans are “mining,” although it is impossible to have an exact figure because many are protecting themselves by using servers in foreign countries.

[…]

Venezuela is something of a mining hotspot because the electricity needed to run the power-hungry computers is so heavily subsidized as to be almost free.

Thus “it is very profitable to ‘produce’ bitcoins,” said economist Asdrubal Oliveros.

[…]

They set the machines up in another woman’s house, as many miners do to spread the power consumption and avoid attracting the attention of the state intelligence service Sebin, whose agents regularly raid buildings when they notice a suspicious surge.

“If they find machines, they arrest the owners or they try to extort money,” said a Caracas office worker named Veronica. “In electricity, we spend barely 15,000 bolivars a month (less than 50 cents at the black market rate).”

Got it. So that’s a pretty nice little setup. Until you get arrested. Which is happening more frequently of late. These short excerpts are from a good piece in The Atlantic:

Because Venezuela has no cryptocurrency laws, police have arrested mine operators on spurious charges. Their first target, Joel Padrón, who owns a courier service and started mining to supplement his income, was charged with energy theft and possession of contraband and detained for 14 weeks. Since then, other bitcoin rigs have been seized–and, in many cases, rebooted by corrupt police for personal profit. As a result, Padrón told me, many people have stopped mining. But Rodrigo Souza, the founder of BlinkTrade, which runs SurBitcoin, a Venezuelan bitcoin exchange based in Brooklyn, says that for others, the temptation is still too great to resist. “People haven’t stopped mining,” he told me. “They’ve just gone deeper underground.”

Venezuela’s most resourceful miners, in fact, are moving on to a new inflation-buster: the cryptocurrency ether (ETH). The profit margins are higher and, more important, the risk factor is much lower. “Mining ETH or bitcoin is pretty much the same principle: using free electricity to generate cash,” one Venezuelan miner told me. “But ETH mining is more affordable–all you need is free software and a PC with a video card. Any police officer is easily fooled into thinking your ETH miner is just a regular computer.”

Given all of that, guess what the increasingly cartoonish Maduro is going to do now? Why, he’s going to launch his own cryptocurrency, that’s what he’s going to do.

And no, I am not joking.

“We are joining the twenty-first century”, Maduro declared on state TV Sunday, before explaining that the creation of a cryptocurrency was necessary to combat the “financial blockade” of the country.

Maduro’s digital currency will be called the “petro” and will be backed “by reserves in oil, gas, gold, and diamonds.” This, Maduro imagines, “will help advance the country’s financing needs.”

Write your own jokes.