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Petro Investment – Is It the End of the Venezuelan Cryptocurrency?

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Mon, 01/28/2019 - 12:17
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  • Venezuela has defaulted on two of its US dollar-denominated sovereign bonds issued back in 2017-2018

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Venezuela has been facing a collapsing economy for the past years, with major problems and increasing hyperinflation, political turmoil and corruption, shortages in necessities such as food and medicines for its population, and political uncertainty. In addition, there is pressure from other countries such as the US and the EU for elections, as President Nicolás Maduro is considered not to be the legal leader of the country.

Venezuela is a country with oil reserves recognized as the largest in the world, being also one of the world's biggest exporters of oil. Instead of being a very rich country offering a high quality of services to its citizens, it is a country in a financial crisis for many years. And most importantly, Venezuela is facing a humanitarian crisis. Food shortages and deteriorated living conditions have been the main cause why a significant number of Venezuelans have become refugees and abandoned the country.

Venezuela’s credit rating is near bankruptcy

Venezuela has defaulted on two of its US dollar-denominated sovereign bonds issued back in 2017-2018, and the recent sovereign rating of the country has been downgraded. The recent credit rating for the country by the three largest global rating agencies is as follows:

Agency

Rating

Outlook

Moody's

C

Stable

Fitch

RD

N/A

S&P

SD

N/A

Two out of the three largest credit agencies in the world have rated Venezuela’s sovereign debt as being in default. Fitch has rated the country’s sovereign debt as restrictive default, and S&P as selective default. Furthermore, Venezuela’s GDP has contracted for the past five consecutive years, a trend most likely to continue in 2019.

With hyperinflation very difficult to be addressed and reduced significantly, the Petro cryptocurrency is a move made by the Venezuela’s government to address US sanctions and find alternative ways of financing.

Petro cryptocurrency – What is it?

Petro crypto

The Petro, or petromoneda, launched in February 2018, is a cryptocurrency developed by the government of Venezuela. As of August 2018, it does not appear to function as a currency.

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The main idea is promising as the cryptocurrency is supposed to be backed by the country's oil and mineral reserves, and its main intention is to offer financing solutions for the country and bypass the sanctions imposed by the US. Some key statistics for the Petro cryptocurrency are the following:

Petro cryptocurrency

The current PetroDollar (XPD) price is $0.0172321 USD. At the moment, it has a circulating supply of 63,993,300 XPD coins and a market cap of $1,102,740 USD. The PetroDollar price is down by (-1.14%) today. $4 USD worth of PetroDollar (XPD) has been traded in the past 24 hours.

What can happen with the Petro in the event of a revolution?

The EU and US are pressuring for elections in Venezuela to change the leadership and hopefully resolve the humanitarian crisis as much as possible. A military coup is a potential risk, and the main political turmoil has to do with the large oil reserves of the country.

Any sanctions on Venezuela’s oil reserves as recently announced can and did have an influence on oil prices. In fact, Venezuela is wishing for a rally of oil prices in 2019, which may make the Petro cryptocurrency more valuable and result in a larger amount of capital raised to finance domestic purposes such as providing healthcare coverage for the population.

The Petro cryptocurrency has been authorized by Venezuela to be traded on six cryptocurrency exchanges.

“The six places are Cave Blockchain (caveblockchain.com), Bancar (bancarexchange.io), Cryptia (cryptiaexchange.com), Amberes Coin (amberescoin.com), Afx Trade (afx.trade), and Criptolago”

A potential revolution should have no effect on the Petro cryptocurrency for one major reason: its trading volume for now is almost at zero level.

Nicolas Maduro

The government of Venezuela is seeking the support of China and Russia, a move that has already taken place to become financially independent and clearly become overall independent from the US as much as possible. But with oil prices globally expressed in terms of US dollars, this seems highly unlikely.

A revolution in Venezuela will have an impact on oil prices, most probably a spike in oil prices until the dust settles down and financial and economic stability return to the country. The idea to back the cryptocurrency with natural reserves such as oil is an innovation, as other cryptocurrencies including Bitcoin lack this fundamental principle.

But with recent sanctions imposed by the US on Venezuela, the risks for the Petro cryptocurrency are extremely high, and its adoption seems highly unlikely. With global oil futures traded on major exchanges, we see no economic reason why traders should prefer the Petro cryptocurrency to trade against oil prices fluctuations, especially given the uncertain financial prospects – a trend most probably to continue in 2019.

About the author

Stavros Georgiadis - CFA Charterholder, Economist, Forex market trader, US stock market financial analyst.

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Sat, 03/28/2020 - 18:45
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  • Crypto investors do not see an alt season coming for many months ahead, as the crypto market corrects.

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As the bitcoin price fails to see upside momentum, the crypto market is at risk of a deeper pullback in the short-term. While the bitcoin price sustained the $6,000 level for an extended period of time, altcoins have continued to see more downside.

Well-known trader DonAlt said:

“BTC looks like it could go up, down or sideways. Alts look like they could go down, down or down.”

The bitcoin price has been on a decline as of late primarily due to the drop in appetite for high-risk assets. Altcoins present additional risk, which investors are seemingly unwilling to take.

Altcoins seem battered, as crypto market loses tens of billions of dollars

Since March 7, within about three weeks, the valuation of the crypto market has dropped from $264 billion to $175 billion, by around $89 billion.

Consequently, altcoins underperformed against both the USD and bitcoin, as investors flocked to stablecoins like Tether.

After the overnight 5 percent drop in the bitcoin price, technical analysts foresee a steep drop ahead for bitcoin in the near-term. Strong support levels for bitcoin are found at $5,800 and $5,250, according to crypto trader Michael van de Poppe.

Poppe said:

“Brokedown after a distribution pattern and clear rejection of the $6,900 area. On the first support around $6,000-6,100 here. Might be testing $6,400 before continuing to drop, primary level for support is $5,800 and more heavily the $5,250 area.”

The altcoin index perpetual futures on FTX indicates a massive 56 percent drop in the altcoin market within merely 43 days, dropping to levels unseen since 2017.

The altcoin index perpetual futures on FTX drop as crypto market slumps
Source: TradingView.com

Market is exhausted

Similar to the U.S. stock market, based on the performance of altcoins in the past two weeks, it is highly unlikely that the altcoin market sees the so-called “alt season” until the global economy rebounds from the economic consequences of the coronavirus pandemic.

There is a clear lack of buy orders and buying demand across all exchanges and assets within the crypto market, increasing the probability of a larger correction to hit the entire asset class in the near-term.

As financial analyst Koroush AK said:

“Most businesses and individuals still have 1/2 months runway. Assuming handling the virus lasts several months not several weeks. Let's see how many want to be holding, let alone buying, bitcoin when struggling to pay bills and put food on the table.”

The low cash buffer of small businesses, which on average is estimated to be 29 days, leaves the U.S. and European economies at risk of continuous decline in the first half of 2020.

About the author

Joseph Young is an analyst based in South Korea that has been covering finance, fintech, and cryptocurrency since 2013. He has worked with various recognized publications in both the finance and cryptocurrency industries.

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