Enrique de los Reyes is the president of the Venezuelan virtual currency business association CAVEMCRIP. We are sitting in his office at ICEX (Spanish Institute of Foreign Trade) in Caracas, Venezuela.
For many, cryptocurrency is a dangerous word when it comes to Venezuela. In 2018, the government launched the Petro, a virtual currency backed by the country's natural wealth. However, it was soon tainted by corruption.
Cryptocurrency regulator SUNACRIP had to completely paralyze its operations in March 2023 following another corruption scandal at state-owned oil company PDVSA. Ten members of SUNACRIP were arrested on suspicion of embezzling more than $3 million.
Cryptocurrency has flourished in Venezuela as well for various reasons. They play an important role in cross-border transactions, especially as the country is cut off from most international financial institutions. With around 7.7 million Venezuelans potentially living abroad, a new phenomenon, remittances, has become crucial.
This South American country has also become a leader in cryptocurrency mining given its subsidies and abundant energy sources. However, considering the recent shortages of electricity and fuel and the large impact on the environment, there are many challenges.
SUNACRIP plans to resume operations in March 2024 after a thorough organizational restructuring. This time, the private sector is expected to play a regulatory role through the newly established CAVEMCRIP.
Q: What is the role of cryptocurrencies in remittances in Venezuela?
A: It plays a very important role. Because it can be transferred to anyone almost instantly, 24/7, with very low operating costs.
Here in Venezuela, it is often very difficult to exchange currency or do business with international banks. There is also the loss of purchasing power of bolivars, so instant transfers are very convenient.
We need to adapt to new payment mechanisms. Businesses need them for the same reason. Without cryptocurrencies, entire countries would default on their debts. Now even our banks are adapting to digital payment systems.
Growth in this sector appears to be largely due to sanctions. How do crypto assets fit in?
Over-compliance has led many financial institutions to suspend Venezuela-related operations, even those not directly connected to the public sector. Cryptocurrency has become a way to conduct transactions without traditional banks.
People, businesses and organizations need to understand that this is not illegal or sanctions evasion. Companies like ours have always operated within the law and simply avoided the side effects of sanctions. The private sector and families should have access to international banks, but many do not.
Cryptocurrency is being used to purchase oil and gas, which is directly linked to sanctions as it trades with PDVSA. Therefore, buyers do not necessarily have to be US citizens, but they cannot trade with Venezuelan state-owned enterprises, but they can in the case of crypto assets. If sanctions continue, we can expect growth in this sector. Still, we have specific laws regarding the use of crypto assets in the context of sanctions, and that does not mean we step into unregulated territory.
How big is the crypto sector?
I can't tell you the exact size, but this is a multi-billion dollar field in our country. Official cryptocurrency payments in 2022 amounted to $125 million. Almost $700 million was raised in 2019, making Venezuela a leading country for crypto assets. Here we only talk about licensed banks and exchange offices.
Of course, all small, unofficial unlicensed exchanges, such as those used for remittances, should also be considered. Last year, 2.7 million surgeries were performed without authorization. After that, 10,000 cryptographic operations were performed.
In Venezuela, remittances amount to 5% of GDP, or approximately $4 billion in 2022. Approximately 10% of the 33 million Venezuelans use crypto assets. Remittances have become very important, especially in countries like Spain, where we started our business. Currently, nearly 600,000 Venezuelans live there. This represents almost 10% of the diaspora.
Many currency exchange offices are unregulated. So, at Bitbase, where I work, we are entering the Venezuelan market by offering legal payment methods. We are registered and operate in accordance with the regulations of Spain and the other countries in which we operate.
Cryptocurrency mining is extremely energy-intensive. It is said that Venezuela once prospered thanks to subsidies. However, while electricity is still very cheap, the supply has become unstable in recent years, and many companies are building their own power plants. How is the crypto sector addressing this challenge and is it considering its environmental impact?
Electricity is almost free for homes and still cheap for businesses, but there are certainly a lot of power outages and you can't run a business that way.
To address these challenges, the cryptocurrency sector has started investing in solar power plants. There is no shortage of sunlight in many parts of the country. Also, Venezuela, which previously only produced oil, is now turning its attention to natural gas for the first time. On another level, if hydropower is operating to its full potential, there is sufficient capacity to meet demand and more with hydropower.
Meanwhile, most of the small power plants are working on gasoline development. Apart from the environmental impact, there is also a shortage of fuel for cars. Therefore, it makes sense to utilize the renewable energy sources we already have.
Another challenge is that as long as SUNACRIP is suspended, there is no legal framework, which has paralyzed many crypto mining companies' operations.
You are currently the president of CAVEMCRIP. What is your purpose as an organization? How are you responding following the regulatory corruption scandal?
As CAVEMCRIP, we want to restore trust in the crypto sector. We recognize its importance and want to give it the respect it deserves. Our company has become an essential sector in recent years, with the tools we can provide in the daily lives of ordinary people.
We want to bring together all the players in this sector: exchanges, mining, education, lawyers, accountants, compliance officers. Integration with the banking sector is also required. We will be the first and only guild to do this.
We are on the side of regulations that foster the development of entrepreneurship and the technology sector in this country. Venezuela has the most extensive regulatory framework in Latin America. We are making recommendations to regulators and inviting dialogue.
We are trying to prove that it is possible to have a regulated professional field that has nothing to do with corruption and other illegal activities that have occurred in connection with crypto assets. We would like to invite domestic and international companies as we have the potential to become the leading country in crypto assets in the region.
You take the Spanish company BitBase to Venezuela. What are you going to do here?
Although I lived in Spain, I am from Venezuela and have seen immense potential in this field. We are a “physical” business, so we have online exchanges as well as brick-and-mortar stores and ATMs where you can buy and sell crypto and fiat currencies quickly, securely and at low cost. As I mentioned before, in a country like Venezuela, this part of our business is very important. For this reason, we are evaluating possible scenarios with exchanges operating within established standards.
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