A recent Reddit post from user WorkingLime indicated that an all-time high amount of bitcoin passed through LocalBitcoins in Venezuela. Image via Reddit.
LocalBitcoins facilitates peer-to-peer, in-person exchanges of bitcoin and other cryptocurrencies for local fiat currency. The service has proven popular among people who don’t want to link their bank account to a traditional crypto exchange, or who don’t have a bank account at all. About 56 percent of Venezuelans fall into the latter category, according to the World Bank.
Data from Coin Dance from early December confirms that LocalBitcoins saw record-breaking volumes of use in Venezuela over the past several days. The service’s volume jumped from just under 1,300 bitcoins traded in the first week of December to more than 1,600 this week. These figures are part of an upward trend that began in September 2008.
Reddit contributors noted that in addition to LocalBitcoins, other crypto exchange services, including AirTM and Uphold, are currently popular in the country.
Why LocalBitcoins and Why Venezuela?
Lack of access to traditional banks — and, by extension, to crypto exchanges that require users to have a bank account or credit or debit card — is likely one reason why LocalBitcoins has proven so popular in Venezuela. (It has also been a factor in attracting other crypto startups, like Paxful, to the country.)
But it’s not the only reason bitcoin has grown so popular in Venezuela. Also at play is the enormous inflation rates that beset the country’s fiat currency, the bolívar. If the International Monetary Fund is to be believed, the bolívar’s inflation rate could reach 1.37 million percent by the end of this year. Other analysts think the numbers don’t look quite that bad, but however you cut it, it’s clear that the bolívar is experiencing hyperinflation.
What does one do in times of hyperinflation? The old answer was to buy gold, land or other stores of value that are not likely to be sharply affected by swings in the value of a country’s currency.
For people in Venezuela today, the answer is instead to buy bitcoin. Sure, the cryptocurrency may have a history of wild price swings of its own, but they aren’t as bad as those affecting the bolívar. And in contrast to items like gold, bitcoin has the advantage of being readily exchangeable for everyday goods and services.
That’s that main factor driving its popularity in Venezuela at the moment. As one Reddit contributor wrote on the thread, referring to bitcoin, “Regardless of its value now, they still use this the most as it helps them survive or make more use of their earnings.”
Speaking of bitcoin’s value, it’s worth noting that it has fallen sharply in recent weeks — which means bitcoin has actually deflated, by one measure. That is also part of the reason why LocalBitcoins trading volume is up in Venezuela: As bitcoin becomes worth less, Venezuelans can buy more of it. But the decline in bitcoin’s value only partly explains why Venezuelans are now buying more bitcoin than ever before on LocalBitcoins.
Venezuela’s hyperinflation situation is likely not the proving ground for bitcoin that many cryptocurrency enthusiasts would prefer. But it is perhaps the best real-world example to date of how cryptocurrency can save the day for people whose fiat currency totally fails.