Venezuela is advertising its groundbreaking state-sponsored cryptocurrency as a means to "promote well-being, bringing power closer to the people.” A lofty goal, but it’s hard to see how the troubled nation’s citizens will be empowered if they can’t even buy it.
The website through which a so-called pre-sale of the Petro digital token began Tuesday is only taking U.S. dollars and euros, and rival coins Bitcoin and Ether. The offering ends March 19. President Nicolas Maduro says the cryptocurrency will be backed by Venezuela’s oil reserves.
Venezuela forbids its citizens from buying foreign currency. The restrictions mean that not accepting bolivars in the Petro pre-sale effectively shuts out residents in the country. The sale is a last-ditch attempt to raise funds since sanctions stemming from Venezuela’s debt default hamper the nation’s ability to issue traditional securities.
Twitter users swung between annoyed and amused after finding they couldn’t buy their own country’s cryptocurrency. User @JanethMcc said "I only have my currency, the bolivar, and I can’t access the Petro. I demand an explanation as a Venezuelan."
Venezuelans will be able to buy Petros with bolivars in the secondary market, which, like Bitcoin trading in peer-to-peer online exchanges, will probably trade in line with the black market rate. Owning cryptocurrencies is attractive in inflation-ridden countries with currency controls like Venezuela as they provide a way to protect savings.
The bolivar trades at about 200,000 per dollar in the black market, or about seven times higher than the official rate, as the hyperinflation rate spirals into the thousands.
The government, which owes about $60 billion to foreign creditors, has raised about $735 million so far from the Petro sale. The maximum amount is about $4.9 billion, and that’s if the government is able to sell the 82.4 million of Petros issued in the pre-sale and the public offering at $60 per token, a value that’s based on a barrel of oil. About half of what’s raised will go to a "sovereign fund" while the rest will go toward developing the project, according to the so-called white paper outlining the plan.
It’s unclear why investors would buy at that price, said Russ Dallen, the managing director at Caracas Capital. There’s no guarantee that they’ll be able to exchange Petros for oil. The country is so strapped for cash, it can’t afford basic supplies like food and medicine.
Investors will have to overlook confusion about how the currency will operate. The white paper says the Petro is built on the Ethereum network, while the user guide the government published says it’s on the Nem network. There are also questions as to whether the $735 million raised so far touted by the government is true, as the public Petro blockchain shows inflows for about half of that.
On the other hand, speculators were willing to buy cryptocurrencies based on a meme and the self-proclaimed "Useless Ethereum Token," so anything is possible.
"At the right price, people will buy anything. Even Venezuela’s latest joke," Dallen said.
Maduro is certainly hoping so, as long as it’s not with bolivars.