Venezuela
The Current Status of Crypto Adoption in Venezuela
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Venezuela ranks high amongst others in the world in the use of cryptocurrencies, and as of 2021, an estimated 10.3% of the population owns digital currencies. Economic challenges like hyperinflation and currency devaluation drive the increase mainly.
In 2023, remittances to Venezuela amounted to $5.4 billion, and cryptocurrencies accounted for 9% of this, which is $461 million. This mirrors the growing application of digital currencies in cross-border transactions, a lifeline amid financial uncertainty.
The government's introduction of the state-issued Petro cryptocurrency to circumvent foreign sanctions was not popular because individuals were not putting their trust and confidence in Petro. Venezuelans are instead making day-to-day payments and storing value through other decentralized cryptocurrencies as well as stablecoins.
Surprisingly, 92.5% of the country's cryptocurrency trading passes through centralized exchanges, which determines the penchant of the population for easily accessible trading platforms.
“Crypto has provided an alternative to democracy activists, NGOs, and freedom fighters to overcome censorship and the closing of the civic space.” — Disruption Banking
Despite efforts by the government to control the crypto space through interventions like regulations and prolonged involvement by the National Superintendency of Crypto Assets (SUNACRIP), the application of digital currency continues to increase.
Venezuela's cryptocurrency volumes witnessed a 110% boost in 2024, injecting an estimated $20 billion into the economy. The surge underscores the significance of cryptocurrencies in providing financial remedies in the face of persistent economic crises in the nation.
Crypto Law In Venezuela
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Venezuela has one of the most complex and unique cryptocurrency regulatory landscapes worldwide. The country has embraced cryptocurrency as an off-grid financial system amidst economic unrest and foreign blockades. The policies, however, have swung with both encouraging people to use cryptocurrency and limiting access to it, resulting in an active and often confusing regulatory situation.
Cryptocurrencies are legal in Venezuela and are defined as financial instruments by the country's regulatory framework. The Venezuelan government has actively been involved in the crypto world, going so far as to launch its national cryptocurrency, the Petro, in 2018. However, although there was initial excitement, subsequent regulatory developments raised the level of government intervention and enforcement against crypto operations.
The central legal foundation of cryptocurrency in Venezuela is the Constituent Decree on the Integral System of Cryptoassets (2019). The decree sets the definition of cryptoassets, their legal standing, and rules for their application in financial transactions.
It differentiates between sovereign crypto assets, such as the Petro, and other digital assets subject to the jurisdiction of Venezuela. The decree also gives the government the authority to control, promote, and regulate all matters relating to crypto.
To implement this regulatory system, the Venezuelan government established the Superintendence of Cryptoassets and Related Activities (SUNACRIP). SUNACRIP is responsible for supervising cryptocurrency exchanges, wallet operators, and mining activities to ensure compliance with formulated laws. Crypto ventures are required to register with SUNACRIP and acquire permits to conduct legitimate business.
The agency also initiated the Integral Registry of Cryptoasset Services (RISEC) to track individuals and companies dealing with cryptocurrencies.
“A group of pooled miners agreeing to share block earnings in proportion to the contributed mining hash power. They share a similar operation to cooperatives, and it would be in charge of the National Superintendency of Crypto Assets and Related Activities (SUNACRIP).” — SUNACRIP
Venezuelan cryptocurrency exchanges are required to obtain licenses from SUNACRIP and comply with anti-money laundering (AML) and Know Your Customer (KYC) standards. Businesses accepting crypto payments need to execute stringent compliance guidelines to evade financial crimes.
Even though these initiatives aim to create a systemized crypto environment, they have also curtailed the growth of small exchanges and increased government control over digital transactions.
Venezuela first invited cryptocurrency mining due to its cheap electricity. In 2020, however, the government mandated all miners to join the National Mining Pool, a state agency that controlled mining rewards.
In 2023, after corruption scandals involving state oil firm PDVSA, the government banned mining, shuttering operations, and seizing equipment. In 2024, Venezuela prohibited cryptocurrency mining altogether, citing unauthorized use of electricity and economic volatility as issues.
However, the Venezuelan cryptocurrency market has issues. The biggest issue is the lack of clarity on regulations, as frequent changes in legislation leave the business and investing community confused. More government control, such as banning mining and strengthening exchange rules, prevents individuals and businesses from making their own decisions.
In addition, by imposing sanctions around the world, Venezuelan cryptocurrency exchanges struggle to connect with global economic systems, thus limiting their ability to access foreign markets.
Taxation of Cryptocurrency in Venezuela
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Venezuela has established a systematic taxation system for cryptocurrency transactions as part of its overall financial regulations. The implementation of cryptocurrency taxation was forced due to the government's intent to earn increased fiscal revenues while maintaining control over digital-based financial transactions.
These measures were legalized by modifying the Law on Financial Transactions Tax, which was adopted by the National Assembly and officially published on February 25, 2022, with effect from March 27, 2022.
“The Tax on Large Financial Transactions Law was published in the Special Edition of the Official Gazette of the Bolivarian Republic of Venezuela No. 6,210, dated December 30, 2015 (TLFTL). The decree was issued by the president under the powers granted under the Enabling Law.” — Norton Rose Fulbright
Under this regime of taxation, cryptocurrency transactions are charged a financial transactions tax equivalent to that levied on foreign currency transactions. The tax was previously 2.0% for specially designated taxpayers, which include those that comprise large taxpayers, related persons, and intermediaries on their behalf.
But the amendments also established a new taxation system whereby all natural persons, entities, and unincorporated businesses that make payments in foreign currency or cryptocurrency through Venezuelan banks without foreign intermediary banks are subject to a financial transactions tax at the initial rate of 3.0%.
The same tax is applied when special taxpayers are remunerated in foreign currency or cryptocurrency through non-Venezuelan banking systems. Notably, this tax does not apply to government-issued cryptocurrency transactions, such as El Petro.
The amendments also accord tax rates the right to vary depending on the nature of the transactions. Payments done through Venezuelan banks can be taxed between 2% and 8%, while payments to special taxpayers outside the Venezuelan banking system can be taxed between 2% and 20%.
The differential tax bands create space for authorities to exercise discretion and vary depending on economic performance and fiscal policy.
In an attempt to mitigate the immediate impact of these prohibitions, the government of Venezuela signed on February 25, 2022, an exemption decree outlining some transactions that are exempt from the foreign currency and cryptocurrency tax on financial operations.
These exemptions expired on February 25, 2023, and included sales, acquisitions, or transfers of securities issued or guaranteed by the Venezuelan government or Central Bank.
Other payments exempted are settlement payments of interest or principal on government-issued securities or securities traded on the Venezuelan securities market, foreign currency transactions, and local currency payments made through national or foreign debit/credit cards connected to foreign currency accounts (special taxpayers excluded).
Such transactions as foreign exchange or cryptocurrency payments made to individuals, businesses, or companies that are not under special taxpayers and remittances received from abroad that go through authorized financial institutions were also included.
These exceptions were meant to alleviate the tax burden on some financial activity and encourage continued participation in cryptocurrency transactions until the new rules were adopted by the market. However, as they lapsed in February 2023, it is uncertain whether relief provisions will be provided again.
Factors Driving Crypto Adoption in Venezuela
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Venezuela witnessed expedited cryptocurrency adoption due to its particular economic and political issues. Below are some drivers of crypto adoption in Venezuela supported by respective data and statistics:
Hyperinflation and Bolívar Devaluation
Venezuela's local currency, the bolívar, has been experiencing hyperinflation and over 1,000,000% yearly inflation in recent years, according to the IMF. Hedges against inflation are provided by stablecoins like USDT and cryptocurrencies like Bitcoin, allowing Venezuelans to preserve their wealth.
Overseas Remittances
Over 10% of the population in Venezuela has crossed borders due to the economic crisis, and the majority of them send remittances back to their country. Cryptocurrencies offer a prompt and less costly way of remitting money abroad compared to customary remittance service providers, who are overburdened with high charges.
Limited Access to Traditional Banking
About 40% of Venezuelans are banked, according to a 2022 World Bank report. Cryptocurrencies and digital assets provide an alternative financial system, enabling the unbanked to participate in the global economy.
Economic Sanctions and Capital Controls
American sanctions have restricted Venezuela's exposure to the international financial systems, and it has become challenging to make cross-border transactions. Cryptocurrency is not affected by such restrictions, and Venezuelans are thus able to invest and trade globally.
Challenges Facing Crypto Adoption in Venezuela
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While cryptocurrency adoption has grown significantly due to the financial troubles of the nation, there are challenges affecting crypto adoption in Venezuela:
Unstable Internet Access
Only 60% of Venezuelans have access to the internet. Inadequate connectivity and recurring power outages discourage most people from accessing cryptocurrency sites and carrying out transactions.
Low Digital Literacy
Most people lack the technical knowledge to use cryptocurrencies effectively and securely. Failure to have proper knowledge of blockchain technology and cryptocurrency wallets can lead to errors, fraudulent operations, or loss of funds.
Scams and Fraud
Venezuela has seen a surge in crypto-based scams, including Ponzi schemes and fake exchanges. In 2022, the Venezuelan government had over 200 cases of crypto fraud, which highlights the dangers for new users.
Regulatory Uncertainty
While the Venezuelan government has launched its cryptocurrency (the Petro), its regulatory framework for other cryptocurrencies is not clear. Venezuela's uncertain crypto regulation raises questions for businesses and individuals who want to adopt crypto.
Potential Benefits of Crypto Adoption
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The adoption of cryptocurrency has numerous potential benefits, particularly in countries like Venezuela, where economic and geopolitical problems have created a unique environment for digital money. Some potential benefits of crypto adoption are;
Faster Cross-Border Payments
Foreign bank transfers can take 3-5 business days, while cryptocurrency transfers typically take minutes to hours. This is particularly useful in Venezuela, where remittances account for 10% of GDP.
Hedge Against Inflation
The inflation rate in Venezuela was 24.4% in 2022, which undervalued the hryvnia. Stablecoins like USDT and USDC, pegged to the US dollar, are a safe store of value in such an environment.
Transparency and Security
Since blockchain keeps the record immutable, it remains nearly impossible to falsify transaction records. This is particularly significant in Venezuela, which is placed 116th among 180 countries on Transparency International's Corruption Perceptions Index (2023).
Humanitarian Aid and Crowdfunding
Venezuela raised over $225 million in crypto donations in the Russia-Venezuela war (Elliptic, 2023). Crypto donations were used to fund military gear, humanitarian aid, and reconstruction, proving that blockchain-based fundraising is useful.
Conclusion
Venezuela's move to regulate and tax cryptocurrency illustrates its general economic policy of using digital assets to stabilize financial transactions and increase the government's revenues. The imposition of a financial transactions tax on crypto payments enables the government to subject such payments to formal regulation, just like foreign currency operations.
While the government's action to exempt certain transactions softened the initial impact, the long-term viability of these policies depends on whether they can evolve to accommodate Venezuela's fluid financial environment.
Finding a balance between encouraging the adoption of cryptocurrencies while complying is not easy, particularly for companies and investors forced to work under this regulatory regime. Venezuela's experience can serve as a precedent—or a cautionary tale—one day in the future for other nations contemplating the inclusion of digital currencies in their economies.
