The Petro: The Yugo of Cryptocurrencies
In a last-ditch effort to save the pyramid scheme that is Venezuelan socialism, the government of Venezuela has apparently launched another pyramid scheme. Last month, it released its own rival to the popular cryptocurrency bitcoin: the petro.
Investors who still think this is a good deal might recall that it was the steady and progressive government takeover of Venezuela’s oil resources has long been a hallmark of the “Bolivarian Revolution.” Maduro claims to have raised $3 billion so far from investors in 20 countries. A fair portion of that figure is denominated in other cryptocurrencies and is a fraction of his country’s debt, and he has yet to put forward enough evidence to support his claims regarding the initial coin offering. Much of that enthusiasm is likely driven by individuals who know little about oil or even cryptocurrencies but are enthusiastic about a national government recognizing a cryptocurrency—any cryptocurrency.
The petro is as much a competitor to bitcoin as the Yugo was to American automobile manufacturers when it entered the market in 1985. The Yugoslav-manufactured hatchback seemed to combine the worst of all worlds—“both a harsh, jarring ride and poor steering and handling,” according to one critic.
Similarly, the petro offers all the risks of traditional currency with none of the benefits of government protection. Cryptocurrencies, at least normal ones, give up the protection of government regulation for the freedom of flexibility and some control over the number of units in circulation.
Unlike bitcoin, petros can’t be “mined” and extracted over the internet. Instead, they are mined the oil-fashion way. The petro was released in a fixed quantity, with each “coin” linked to a single barrel of oil, currently worth roughly $60. Home to the world’s largest proven oil reserves, Venezuela has plenty of oil. However, it is worth pointing out that Venezuelan crude is heavy or extra-heavy crude oil, viscous oil that is difficult to refine. If an investor is going to hold a hypothetical barrel of oil, why is the world’s most difficult to extract kind the best option?
The failings of the petro are so apparent and obvious that some Venezuelan sources think something else is afoot. Perhaps it purpose is simply to distract from the further military consolidation of the Venezuelan economy. Or it may be an effort to get some mojo behind Nicolás Maduro’s re-election campaign, which the president launched almost concurrently with the launch of the petro—with dance moves that put him right up there in the history of the worst-dancing politicians of all time with former Russian President Boris Yeltsin.
Speaking of Russia, Venezuela has now joined Russia and North Korea in attempting to manipulate the popularity of cryptocurrencies to support their regimes. Cambodia recently denied plans that it was developing its own cryptocurrency. The anonymity of cryptocurrencies allows regimes to operate in secret. In Venezuela’s case, the petro will allow anonymous financial transactions in order to facilitate exports in oil, diamonds, gold, and other goods.
US Senators Marco Rubio (R-FL) and Bob Menendez (D-NJ) announced following the unveiling of the currency that they were urging the Treasure Department to ensure that the petro was not used by the Maduro regime to avoid US sanctions. On March 19, 2018, the Trump administration banned Americans from dealing in the petro, on the grounds that buying the “currency” was essentially nothing other than lending to the Venezuelan government.
With Venezuela’s economy falling apart and its national currency suffering runaway inflation, more and more Venezuelans are looking for stable ways to store value and ensure their families’ livelihoods. The petro, however, is just the latest in Maduro’s record of wild schemes.