The migration crisis in Venezuela increases dependence on digital currencies
As Venezuela recovers from one of the most severe economic crises in its history, more families are finding salvation in an unconventional source: cryptocurrencies.
Traditional money transfer and conversion to digital currencies
Traditionally, remittances, or money from relatives living abroad, are sent via international banks or financial services companies such as Western Union and MoneyGram, and are often subject to transfer fees of up to 7%. With the Venezuelan Bolivar fluctuating and government restrictions, and transfers taking up to three business days to complete, speed becomes an important advantage for cryptocurrencies.
In the last decade, Venezuela has become one of the most remittance-dependent countries in South America. According to a study by Inter-American Dialogue, after the escalating migration crisis the country faced, about 30% of Venezuelan families began receiving remittances. The amount sent via cryptocurrencies is likely to reach a record 9% of all money sent last year, according to data from blockchain analysis firm Chainalysis.
Immigration and its impact on the economy
According to the Inter-Agency Coordination Platform for Refugees and Migrants from Venezuela, more than 7.7 million migrants and refugees have fled Venezuela in the last decade. For further comparison, 6 million people have left Ukraine since 2022, and 5 million people have fled Syria since 2011.
In the past two years, the number of Venezuelan immigrants in the United States has grown dramatically, with nearly 300,000 immigrants arriving last year. This exodus has put pressure on American cities such as New York and Chicago, raising expectations that immigration will be one of the main factors in the US presidential election.
### Using digital currencies in remittances
The next step for many immigrants after settling is to help those they left behind. Last year, Venezuelans received more than $5.4 billion in remittances, making up at least 6% of GDP, according to the Inter-American Dialogue. This number represents an increase of nearly 75% over the amount sent in 2021. More than $461 million of remittances in 2023 were via cryptocurrencies.
Challenges and opportunities of digital currencies
However, this method of sending and receiving money faces major challenges. Cryptocurrency prices fluctuate widely, which means that the amount received can differ significantly from the amount sent. In addition, regulatory uncertainty increases the level of risk.
In Venezuela, peer-to-peer trading platforms have become popular for converting funds received in cryptocurrencies into bolivars. They have the option to exchange digital currencies at market rates, often bypassing official exchange controls. Despite the regulatory issues Binance faces in the United States, it remains the most popular cryptocurrency exchange site for Venezuelans and immigrants in many parts of the world.
“You don't know who you're dealing with when you do peer-to-peer exchanges,” said Enrique de los Rios, a cryptocurrency consultant in Venezuela. “They might give you counterfeit bills, or they might give you money from illegal sales, and there's no entity you can turn to to solve the problem.”
Personal stories
Carlos Espinoza, who moved to Argentina in 2018 due to the economic collapse in Venezuela, uses cryptocurrencies to transfer money to his family. “This is the easiest way I have found to send money to my family and also save money in another currency that is not affected by hyperinflation,” Espinosa says.
a summary
As Venezuela continues to face economic challenges, cryptocurrencies are emerging as an innovative and flexible solution for handling remittances. Despite the associated risks, it provides Venezuelan families with an efficient and quick way to exchange money and support relatives back home.
