Venezuela Is Using Crypto to Evade Uncle Sam... and This Is Just the Start

Venezuela will launch its new oil-backed cryptocurrency today (Feb. 20) - the "petro" - in a direct effort to shirk U.S. sanctions.

Venezuelan President Nicolas Maduro hopes to raise foreign investments as his country faces 13,000% inflation, plus food and medicine shortages, purportedly worsened by international sanctions.


Those very sanctions have allegedly rendered Maduro unable to refinance Venezuela's crippling debt burden, which, in turn, led Socialist Party officials to seek new forms of raising hard currency.

"The petro digital currency would appear to be an extension of credit to the Venezuelan government... [and] could therefore expose U.S. persons to legal risk," a Treasury spokesperson told Reuters this morning.

However, critics say that sanctions are not the reason the country's economy is collapsing.

"The main reason Venezuela can't raise financing is that macroeconomic finance is a s*** show," Francisco Toro, a Venezuelan journalist, told CNBC yesterday.

Regardless of the cause of Caracas' crisis, Maduro is pressing forward with the sale of 82.4 million petro tokens via "pre-sale" today. Each will be backed by Venezuelan commodities - oil, gas, gold, and diamond reserves, in particular.

The rest of the coins, of which there are 100 million total, will go on sale next month.

Already, it seems that there are some interested buyers - at least, according to Caracas' cryptocurrency regulator, Carlos Vargas, last week, who said that it would draw investments from Qatar, Turkey, and other Middle Eastern countries.

While we don't expect the petro's introduction today to shake up the global crypto market, this is just the start of a global trend of using cryptocurrencies to circumvent U.S. sanctions.

Here's who's next...

Venezuela's Petro Is Just the Beginning of a More Dangerous Trend

Russia is already looking to take advantage of the crypto craze.

On Jan. 2, Russian President Vladimir Putin reportedly commissioned work to create a cryptocurrency as a tool to evade punitive trade measures. His economic adviser Sergey Glazyev said, "a crypto-ruble would be a useful tool to get around international sanctions," according to The Financial Times that day.

Cryptocurrency as a whole provides the means for sanctions evasion because of the anonymity and the plausible deniability its transactions provide.

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Digital coin transactions allow for the buying and selling of assets across borders with minimal oversight, if any.

Plus, crypto transactions move fast; they can go from country to country in a matter of seconds, and from digital to tangible fiat form just as fast.

Foreign investors who put money into these assets could therefore unwittingly - or, at least, complacently - support a hostile regime with their investments.

For instance, "crypto-ruble" purchasers in the United States would ostensibly be supporting a nation believed to have interfered in the U.S. election and in other countries' political systems.

And for Venezuela, investors will finance a dictatorship that has abused anti-government protesters and deprived citizens of economic opportunity.

So naturally, we don't recommend investing in the petro, or any future government-backed cryptocurrency.

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