Is Venezuela leading the way?

Thursday, 13 December 2018
Melbourne, Australia
By Bernd Struben

  • 35 million users…and growing
  • ‘Gutless and Desperate for Power’

The PetroDollar (XPD) gained 89.64% over the last 24 hours.

That should come as good news to older Venezuelans, who are now receiving their pensions in petros.

Not that they have any say in the matter.

As CoinDesk reports:

Venezuela has reportedly begun converting pensioners’ monthly payments into its controversial cryptocurrency, the petro.

According to the Caracas Chronicles, an English-language politics and economics blog based in the country, the government has recently been taking the bolivares (the country’s current fiat currency) paid to its elderly residents and automatically swapping them for petros.

You’ve probably heard of the petro. Though it’s unlikely you own any.

The petro is the brainchild of Venezuela’s president, Nicolas Maduro. He first raised the idea in 2017, saying he would link the value of the national crypto to oil prices.

Maduro hoped to do an end run around US sanctions on Venezuela and move away from the dominance of the US dollar in oil markets.

His idea was widely panned at home and abroad…and sanctioned by the US government.

Nonetheless, Maduro managed to launch the petro, which has reportedly raised anywhere from several hundred million dollars to as much as US$5 billion. (How’s that for transparency?)

And he’s pressing forward to integrate the petro throughout the economy.

The only way for Venezuelans to pay for a new passport these days is with petros. And CoinDesk reports that the nation’s salary systems will also be converted from paying bolivars to petros.

With the value of the petro still fluctuating wildly — as in the overnight 89.64% gain — this will present an interesting new dilemma for Venezuela’s wage earners.

Do you immediately spend it all? Do you hold onto some in hopes for further price gains? Or do you convert what you can into US dollars?

You’ll notice I didn’t ask if you’d swap it back into bolivars. We’ll let Reuters explain why not:

Venezuela’s consumer prices rose 1.3 million percent in the year ending in November, the opposition-controlled National Assembly said on Monday, as hyperinflation and recession grip the OPEC member.

The International Monetary Fund (IMF) forecast earlier this year that inflation would top 1 million percent in 2018 and 10 million percent next year.

1,300,000% annual inflation.

It’s not easy to wrap your head around these kinds of figures. Especially not in a nation where the inflation rate is a tidy 2.1%.

But it gives you an idea of why there’s not more outrage from the masses at having their pensions, and soon their paycheques, issued in a cryptocurrency rather than bolivars.

Maduro is an unlikely first mover in this space. But I doubt he’ll be the last.

Sure, the broader crypto market took a battering in 2018, following the irrational exuberance of 2017.

But I believe the pundits predicting a slow but sure death for cryptocurrencies still don’t grasp the bigger picture.

More, after a look at the markets…


Overnight, the Dow Jones Industrial Average closed up 157.03 points, or 0.64%.

The S&P 500 gained 14.29 points, or 0.54%.

In Europe, the Euro Stoxx 50 index finished up 52.65 points, or 1.72%. Meanwhile, the FTSE 100 gained 1.08%, and Germany’s DAX closed up 148.92 points, or 1.38%.

In Asian markets, Japan’s Nikkei 225 is up 212.99 points, or 0.99%. China’s CSI 300 is up 1.94%.

In Australia, the S&P/ASX 200 is up 19.80 points, or 0.35%.

On the commodities markets, West Texas Intermediate crude oil is US$51.39 per barrel. Brent crude is US$60.15 per barrel.

Despite the noises coming from OPEC members hoping to cut output and drive the price of Brent back into the $70 range, the taps are still open. And even if OPEC does agree to cut production, the US shale boom has dramatically changed the nature of the game.

The US took over the mantle as the world’s largest oil producer earlier this year. And earlier this month, the US became a net oil exporter for the first time since 1944.

From Bloomberg (7 December):

America turned into a net oil exporter last week, breaking almost 75 years of continued dependence on foreign oil and marking a pivotal — even if likely brief — moment toward what U.S. President Donald Trump has branded as “energy independence.”

You can see the massive turnaround in the chart below:

chart image

Source: Bloomberg
Click to enlarge

In 2005, the US still imported 12.55 million barrels of oil per day.

At today’s Brent crude prices, that would work out to US$750 million (AU$1.4 billion) per day. Over the course of the year that would have set the US back more than US$273 billion on imported crude.

Today all of that revenue…and then some…stays in US hands. Something to keep in mind when markets get the jitters ahead of the next OPEC meetings.

As I’ve been writing to you since March — even as oil marched stubbornly higher on fears of limited supply — the world is awash in oil. We’ll leave it with this snippet from today’s Bloomberg:

Oil gave up all of its gains in the last half hour of trading and skidded to a loss as a smaller-than-expected decline in U.S. crude stockpiles revived fears of a global glut.’

Surprise, surprise…

Turning to gold, the yellow metal is trading for US$1,246.38 (AU$1,726.53) per troy ounce. Silver is US$14.75 (AU$20.43) per troy ounce.

One bitcoin is worth US$3,412.00.

The Aussie dollar is worth 72.19 US cents.

35 million users…and growing

Perhaps the biggest appeal of cryptocurrencies — and the biggest idea driving them forward — is that they can supplant government-issued fiat currencies.

And whenever you can minimise the role of government in your financial life — or any other part of your life — that’s got to be good news.

Now the petro is a bit of a mixed bag in this case. As Venezuela’s rather shady government has its hands all over it.

Fortunately, that’s not the case with the wider crypto market.

And as Bloomberg reports, despite the 2017 crypto bubble deflating this year, the number of verified crypto users almost doubled in the first nine months of 2018.

As you can see in the graph below, a study from the Cambridge Centre for Alternative Finance shows that the number of people using cryptos went from 18 million to 35 million between January and September this year.

chart image

Source: Bloomberg
Click to enlarge

This is the kind of user growth most firms can only dream of.

And if Google Trends is anything to go by — which it is — the next nine months could see similar if not even faster growth in crypto user numbers.

From Bloomberg:

Bitcoin’s mesmerizing rise and fall in the past year has left investors and regulators asking what just happened?

Many are also asking an even more fundamental question: ‘What is Bitcoin?’ In fact, that was the most searched definition in the U.S. and U.K. in 2018, according to Google Trends…

Bitcoin is not the only cryptocurrency Google users are interested in. ‘How to buy Ripple’ was the fourth most-asked how to question, Google Trends data show. The cryptocurrency widely referred to as Ripple is actually named XRP, just to add to the mayhem.

I’ve got to admit. I was surprised that ‘What is Bitcoin’ tops Google’s most searched definition list this year.

It just goes to highlight how important it is for you, as an investor, to remain atop of breaking trends. Certainly, I’d hope you were aware of what bitcoin is well before 2018.

This is usually the part of the issue where I tell you that readers of Sam Volkering’s introductory advisory service, Secret Crypto Network, could answer that question — as well as how to buy ripple — without hesitation.

I might also mention that more serious crypto investors should look into Sam’s premium Crypto Tech Investor advisory. Or Ryan Dinse’s premium service, Extreme Crypto Trader.

But I won’t tell you that today.

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Finally, here’s a snippet from Port Phillip Publishing’s new free daily e-letter, The Rum Rebellion:

‘Gutless and Desperate for Power’

Stocks are set to have another decent day today as some much needed balance returns to the market. But don’t get too carried away. The bear is just luring some punters back in before it strikes again.

Be wary, dear reader…

The Rum Rebellion is a new free daily eletter brought to you by Port Phillip Publishing’s Head of Research, Greg Canavan. The service provides a uniquely Australian voice commenting on the nexus between money, stocks, politics and economics.

Greg has a libertarian view of the world and believes in free speech, individual freedom and personal responsibility. Every day in The Rum Rebellion, he seeks to tell you about how the world really is, not how the world’s vested interests wish it to be.

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