After the state-run Petroleos de Venezuela SA revealed their cryptocurrency holdings, Venezuela’s central bank has a pivotal decision to make regarding the future of crypto integration at the government level.

Reports indicate that Venezuela central banking officials are in the process of running internal tests regarding the potential to incorporate Bitcoin and Ethereum into national banking operations.

PDVSA represents the state-owned oil and natural gas company, whose operations include conducting international trade on Venezuelan oil.

The amount or origin of PDVSA crypto holdings is unclear, though it is likely that historical sales were made in cryptocurrency to bypass United States and international sanctions that severely limit international trade and participation in global financial ecosystems.

Last month, the majority of a $700 million payment was facilitated in Chinese Yuan due to an inability to find facilitators willing to deal in Venezuelan Bolivar (VEF).

A regime of incompetence

Venezuela’s national economy has been in shambles since the Maduro regime took power in 2013. The unyielding hyperinflation since 2013 has devastated the entire country.

In 2018, the inflation rate of VEF was over 1,350,000%.

Because Venezuela’s GDP is so reliant on oil production, a volatile market, their economy is already exposed to severe swings.

The hyperinflation that the socialist regime has failed to cull amplifies this volatility further.

Cryptocurrency: the Venezuelan savior

Venezuelan citizens, massively restricted by the local currency’s hyperinflation, have historically been quite receptive to crypto as a means to build savings and protect wealth.

The government has been experiencing with cryptocurrency as well. In February 2018, the government launched a state-issued cryptocurrency, Petro, pegged 1:1 against barrels of oil.

The purpose of Petro is to circumvent sanctions abroad and provide a more stable economy domestically, although it is unclear what Petro activity has actually taken place to date.

With the central bank now exploring Bitcoin and Ethereum adoption, this would open up avenues for citizens and the central government alike to deal-in and accumulate crypto.

As the government is trying desperately to improve the economic situation, a cryptocurrency war chest in national reserves could potentially be an upcoming solution.

An arms race for crypto?

Bitcoin evangelists have long pondered a time in the future where national governments are competing against sovereign individuals to build cryptocurrency stockpiles.

The idea is that with a greatly limited supply, and an implied value as a sovereign “safe haven” currency, the demand will massively outweigh the world’s supply.

If Venezuela decides to go ahead with cryptocurrency adoption and accumulation internally, and finds the decision to be successful, national governments elsewhere with weak economies could be looking at mimicking their approach.

And with that, the evangelists envision a domino effect that ends in an arms race behind all the largest entities in the world frantically racing to accumulate as much coin as they can.

As for the PDVSA, their requests towards the Venezuelan central bank to integrate cryptocurrency is likely far more pragmatic: a cooperative central bank means not having to communicate financial records to third party exchanges.