On Monday, 8th January 2017, the total market capitalization of all traded cryptocurrencies reached its historical high at $828 billion USD — a 40x gain for those who invested in an index tracker at the beginning of the year. At the time of writing, the crypto market is valued at $209.6 billion USD, losing over 75% of its valuation only 10 months after the all-time-high, and shrinking the capital of millions of investors worldwide.
In an attempt to capitalize on the bullish momentum of December 2017, Venezuela’s president Nicolas Maduro announced the launch of the Petro coin – which failed to attract the capital of crypto investors and rescue a government on the verge of bankruptcy. According to economist’s estimates, the nation’s hyperinflation had scored to nearly 2400%.
Over two million Venezuelan nationals have now fled a country that not so long ago was regarded as the region’s most stable democracy. The collapse of Venezuela’s economy has brought a shortage of basic goods such as food and medicine, in addition to skyrocketing crime rates – earning Caracas the title of murder capital of the world, where nine in ten murder cases remain unsolved.
As people in Venezuela search for stable alternatives to the local currency for daily transactions like paying for groceries or selling real estate, a number of blockchain companies have gained popularity among locals. Vaultoro, a crypto commodities exchange that allows users to buy and sell bitcoin for digitally allocated gold, is commonly used by citizens wanting to store value away from the effects of hyperinflation.
“Gold, linked with the blockchain by projects such as Vaultoro, could be the missing piece in creating a stable cryptocurrency ecosystem.”
Take for instance the case of Juan Sanchez, a 42-year-old electrical engineer that has been trying to sell his apartment located in the east side of the city to start a new life with his family in Chile. In 2007, his apartment was valued at $250,000. Today, he would consider it a great deal if he gets $50,000.
Carrying out that transaction in Bolivars (the local currency) would be way too risky as the value of the Bolivar can drop from one day to the other, dragging the value of the estate with it. Usually, Juan would turn to the US Dollar and use a foreign bank account to conduct the transaction. However, to hold and transact with foreign currency in Venezuela is illegal.
Instead, Juan is selling his property in Bitcoin and using Vaultoro to exchange it into a stable store of value: investment grade (99.99%) gold. By using Vaultoro, Juan can hedge against the risk of BTC’s price fluctuation and access his holdings digitally once he has settled in Chile without the need for a banking institution.
Cryptocurrencies such as Dash are also making their way into the country. The DASH DAO, who recently invested in Vaultoro, has allocated over $800,000 to projects such as the Dash Help Support Center and Dash Merchant to help educate consumers and promote the usage of cryptocurrency in Venezuela.
By September 2018, more than 1,000 merchants in Venezuela accepted Dash as a payment method, including food franchises such as Subway, surpassing the number of merchants affiliated to Dash in the United States.
Stablecoins are in demand. The query ‘stablecoin’ has over 1.3 million results on Google and its own Wikipedia entry. Gold, the favorite commodity used by the wealthy and powerful for over three thousand years to protect their capital against bear markets and apocalyptic times, may be about to become that mainstream stablecoin that investors and consumers are claiming for.
Venezuela and other emerging markets are becoming cryptocurrencies’ sandbox. Projects such as Dash and Vaultoro are in high demand in these countries where the government-controlled monetary system has virtually collapsed.
As the world transitions to a more distributed financial system. Currency stability might be the biggest obstacle to the mass adoption of cryptocurrencies. Gold, linked with the blockchain by projects such as Vaultoro, could be the missing piece in creating a stable cryptocurrency ecosystem.