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Bitcoin is Set to Displace the Bolívar in Venezuela

Bitcoin is shaping up to be the unofficial legal tender in Venezuela as the country continues to suffer the effects of hyperinflation in its currency. Venezuela has become a shadow of its former self as the once prosperous oil-rich country now struggles to provide citizens with the most basic needs of life.  The global crash in oil prices dealt a tragic blow on the country’s economy – its foreign reserves had $43B in 2009 but it has less than $11B now.

A series of ill-timed government policies such as socialist programs to redistribute wealth triggered economic chaos in Venezuela. However, the most recent economic policy that could cause Bitcoin to displace the Venezuelan Bolívar is the move to withdraw the 100-bolívar note from circulation. This article explores some of the reasons behind the trending shift towards Bitcoin in Venezuela.

Bitcoin comes to the rescue in Venezuela

The 100-bolívar was already practically worthless because it is worth less than $0.03 outside of the government’s ‘unrealistic’ pricing system. Of course, most Venezuelans don’t know what the 100-bolívar note is really worth and shopkeepers have started weighing the notes instead of counting them. Venezuelans have responded with riots and protests and the government have extended the deadline for outlawing the 100-bolívar note until January 20.

However, many Venezuelans have lost confidence in the country’s currency and many of them are starting to move their funds into Bitcoin. Bitcoin is global cryptocurrency and you don’t have to worry that its value would be eroded by the economic woes of any single country. In fact, economic woes tends to boost the price of Bitcoin in much the same way that gold tends to soar during periods of economic uncertainty.

The rushed nature of the move to outlaw the 100-bolivar note is also making people scared of holding fait currencies going forward. The Venezuelan government initially gave a 72-hour window for spending the 100-bolivar note but ATMs were mostly dispensing those same 100-bolivar notes and businesses were hesitant to accept the notes.

Hence, most people would have ended up with hundreds of thousands useless 100-bolivar notes if the window ended and they’ve not been able to replace their 100-bolivar banknotes. However, the decentralized nature of Bitcoin means that people don’t have to worry that the government will decide to outlaw the currency out of the blue.

Bitcoin will embed itself deeper into the Venezuelan economy

The Venezuelan government’s plan to remove the 100-bolívar note from circulation to be replaced with higher denominated notes reveal the level inflation in the country’s economy. In a report published recently, Steve H. Hanke and Charles Bushnell of Johns Hopkins  notes that Venezuela now has hyperinflation because it has maintained a monthly inflation rate of more than 50% for 30 days. In essence, the reality of hyperinflation in the Venezuelan economy makes its expedient to look for alternative currencies.

More so, analysts observe that the problems facing fiat currencies globally will be amplified going forward as isolationism continues in the global geopolitical landscape. Gil Luria, the director of research at Wedbush Securities notes that “the more there is an expectation for new barriers to be erected, the more there is an expectation that Bitcoin will be valuable for moving money across borders.”

Bitcoin Finds Strength for Bullish Rally as Chinese Yuan Becomes Weaker

China is fueling an impressive uptrend in the price of Bitcoin as Chinese investors find more reasons to store their wealth in alternative currencies. The Chinese Yuan has been falling lower in the last couple of weeks in response to the possibility that the U.S. Federal Reserve might raise interest rates by the end of this year.

However, Chinese folks are flocking to alternative currencies such as Bitcoin to hedge against currency devaluation and volatility in the Chinese economic landscape. This piece seeks to explore the relationship between Chinese economic woes, currency devaluation and its effect on the gains in the price of Bitcoin.

CoinDesk Bitcoin Price Index for China


Bitcoin soars to four-month high in response to weak Yuan

The Chinese Yuan is becoming weaker in the wake of tougher capital controls designed to limit the amount of money that Chinese people are permitted to move abroad. The weakness in the Yuan has started fuelling an increased demand for Bitcoin and the upside potential for the alternative currency is looking strong.

On October 21, Bitcoin soared by 4% to near a three-month high of $655.50 to mark the highest trading price since July 29. Trading data available in the markets also show that trading volume soared to 5.5 million Bitcoin to mark the highest point in trading volume in the last 7 months.

You’ll remember that China devalued its currency in August 2015 as a means to halt the outflow of money out of the country and in order to help its local manufacturing industry. The move to devalue the currency didn’t sit well with China’s money families and they protected their wealth by diversifying into Bitcoin and other alternative investments. Of course, the price of Bitcoin has gained about 80% from August 2015 to date in response to that devaluation among other things.

The value of Bitcoin will continue to increase going forward as the realities of a weak Yuan sinks deeper. Zhu Jiawei, COO of Beijing-based Huobi, one of the largest Chinese Bitcoin exchanges observes that “as the Yuan enters a path of depreciation, investors will consider investing in assets that can preserve value and hedge risks.” This morning, Bitcoin is already up 0.78% to $653.47 to suggest that it has found support around $640. Bitcoin is up 0.47% on the Chinese market as it trades against 4,505.87 Yuan.

Can Bitcoin cross the $1000 milestone again?

Arthur Hayes, founder of Hong Kong-based Bitcoin exchange BitMEX observes that that value of Bitcoin will continue to increase if Beijing doesn’t deviate from its plan for constant devaluation of the Yuan. It should be noted that Bitcoin currently trades at a 2% premium against to the Chinese Yuan at 4,488.6 in contrast to the price of Bitcoin against the USD.

The Yuan is currently in a free fall against the dollar dropping 0.1% to 6.77723. Hayes observed that the Yuan could fall as much as 7% against the USD by January and that such a massive decline could cause Bitcoin to rise to cross the $1000 milestone again. In the words of Hayes, “The continued devaluation of the Chinese yuan is what’s driving traders at the margin to buy Bitcoin.”

Bitcoin News Bites

  • An investment bank, Needham & Company, has just released a report which states bitcoin’s value is understated by 58% of its current value. Bitcoin’s ostensible value is $412, but should really have a value of $655, according to the report.
  • You can now get bitcoin from an ATM at 17th and Mission Streets in San Francisco. This is now the third bitcoin ATM in the Mission.
  • Bitcoin technology is stirring controversy on Wall Street. Early in March, 2016, the company CVR3 announced the successful completion of a trial in which over 40 of its member banks put blockchain technology to a test. Each member issued, traded and redeemed a fixed-income product.  Although the test results threaten to make current Wall Street trading technology obsolete, Wall Street spokespeople promise they’ll now use the test results to refashion their old technology for better trading performance.
  • After claiming it would no longer accept bitcoin on its Windows Store, Microsoft announced a complete reversal in policy.  The IT giant has offered no explanation as to why it had initially rejected bitcoin as a payment option.
  • The noted email service, FastMail, that offers paid email accounts, has been accepting bitcoin payments through BitPay for customers who choose to upgrade to its premium option.  FastMail’s work in this area has been completely unannounced and has remained under the radar.  The service is used internationally by over 100,000 individuals and organizations.
  • The first Arab bitcoin community has recently formed.  Until now, there has been little discussion in the Arab world about bitcoin.  The primary purpose of the Arab bitcoin community is to understand the idea behind bitcoin and promote discussions about it.  The group will be pushing for adoption of bitcoin throughout the Middle East and North Africa in the coming years.
  • Bovada Sportsbook, the online sports betting platform, now accepts bitcoin.  This action is welcomed by frequent Bovada since it cuts down on transaction fees incurred through depositing or withdrawing funds. Also, the option to be able to pay with bitcoin represents a boon to privacy, a big concern among sports bettors.
  • According to the Financial Times, in the next two weeks, Australian Craig Steven Wright will announce he is Satoshi Nakamoto, the creator of bitcoin. What’s more, Stevens claims he will prove his identity cryptographically.  Wired Magazine had claimed it received information through a link that Nakamoto is actually Stevens.  Apparently, in about two weeks, we’ll find out the truth from Stevens (Nakamoto?) himself.
  • Coinbase CEO Brian Armstrong reports his company is looking into the creating of “killer apps” for widespread bitcoin usage.  Armstrong envisions, among other things, a world in which large populations with cell phones but no access to banking would be able to fill an immense financial gap through bitcoin transactions.
  • In March, 2016, WireX announced the very first two-way bitcoin debit card.  The card also has a function with which a user can buy bitcoin. Users will be able to fund bitcoin accounts from any location by means of a traditional bank transfer and alternative payment methods. This is apparently the first “hybrid” banking operation that links blockchain technology to the traditional banking system.