Venezuela’s Crypto Rebirth: Interview With Enrique De Los Reyes

Enrique de los Reyes is president of Venezuela’s crypto business association, CAVEMCRIP. We sit at his office at the ICEX, the Spanish Institute for Foreign Trade, in Caracas, Venezuela.

For many, crypto is a dangerous word when related to Venezuela. In 2018, the government launched a cryptocurrency, the “Petro”, that was meant to be backed by the country’s natural wealth. However, it was soon tainted by corruption.

The crypto regulator, SUNACRIP, had to paralyze operations completely in March 2023 after a corruption scandal related to another in state-owned oil firm PDVSA. 10 members of SUNACRIP were arrested, accused of misappropriating over $3 million.

Crypto assets also flourished in Venezuela for different reasons. They are playing a key role in cross-border transactions, especially as the country has been cut off from most international financial institutions. Remittances, a new phenomenon, have become all-important since around 7.7 million Venezuelans could now be living abroad.

The South American country also became a leader in crypto mining, given its subsidies and wealth in energy sources. There are many challenges, however, if we consider recent shortages of electricity and fuel, and the heavy environmental impact.

In March 2024, the SUNACRIP is expected to resume operations after a thorough reorganization. This time, the private sector is expected to have a role in regulation, through the newly formed CAVEMCRIP.

Q: What is the role of crypto with remittances in Venezuela?

A: They have a very important role, as they ensure that you transfer to anyone almost immediately, with a very low operational cost, 24 hours a day and 365 days a year.

Here in Venezuela, it is often very hard to exchange currency, or have transactions with international banks. There is also the loss of purchasing power of the bolivar, so an immediate transfer is very useful.

We have to adapt to new payment mechanisms. Businesses also need them for the same reasons. Without cryptocurrencies, the whole country would be in default. Even our banks are adapting to digital payment systems now.

It seems that this sector has grown in large part thanks to sanctions. How do crypto assets fit in?

Due to over-compliance, many financial institutions have shut down operations to do with Venezuela, even if there is no direct relation to the public sector. Cryptocurrencies have become a way to make transactions without traditional banks.

People, businesses, and institutions need to understand that this is not illegal, or evading sanctions. A firm like ours always works under the law, we are just working around a side effect of sanctions. The private sector and families should be able to use international banks but often they cannot.

There is also the use of crypto to buy oil and gas, and that is directly related to sanctions, as they are trading with PDVSA. So a buyer might not necessarily be a U.S. citizen, but he cannot do transactions with Venezuelan state-owned enterprises, but with crypto assets they can. If sanctions persist, we can only expect this sector to grow. Still, we have specific laws for the use of crypto assets in the context of sanctions, it does not mean that we go into unregulated territory.

What is the size of the crypto sector?

I cannot tell you the exact size, but this is a billion-dollar sector in our country. For 2022, formal crypto payments amounted to $125 million. In 2019, we almost had $700 million, turning Venezuela into the leading country in crypto assets. Here we are only talking about authorized banks and exchange houses.

Of course, you have to consider all the smaller and informal exchanges, without licenses, for example, the ones used to send remittances. Last year, we had 2.7 million operations without a license. We then had 10,000 crypto operations.

In Venezuela, remittances amount to 5% of GDP, or about $4bn in 2022. Out of 33 million Venezuelans, about 10% use crypto assets. With remittances, it has become very important especially in a country like Spain, where we started our business. Close to 600,000 Venezuelans live there now. That is almost 10% of the diaspora.

Many exchange houses are not regulated. So at Bitbase, where I am working, we are entering the Venezuelan market offering a legal path for payments. We are registered and working in accordance to the regulations in Spain and the other countries where we operate.

Crypto mining is highly energy intensive. For a while, it is said that it flourished in Venezuela thanks to subsidized costs. However, while electricity is still very cheap, in recent years supply has become unreliable and many businesses are building their own generation plants. How is the crypto sector dealing with this challenge? And is it considering its environmental impact?

Electricity is almost free for households and still cheap for companies, but we indeed have many blackouts, and a business cannot operate like that.

To deal with these challenges, in the crypto sector we are starting to invest in solar power farms. We have no lack of sunlight in many parts of the country. We are also using natural gas, which only now Venezuela is taking more of an interest in, as we used to only produce oil. On another level, we have enough capacity to cover more than our demand with hydroelectric power, if it was running to its full installed potential.

Meanwhile, most small generation plants are working on petrol. Aside from the environmental impact, we’ve had shortages of car fuel as well. So it just makes sense that we harness the renewable energy sources that we already have.

Another challenge is that many crypto mining companies have paralyzed operations, again because there is no legal framework as long as SUNACRIP is suspended.

You are now the president of CAVEMCRIP. What is your purpose as an organization? How do you fit in after the corruption scandals in the regulator?

As CAVEMCRIP, we want to regain the trust in the crypto sector. We want to give it the importance and the respect that is due. We have become an essential sector in recent years, and we have tools to offer to the general population for their day to day.

We want to bring together all the actors in the sector, including exchange houses, mining, education, lawyers, accountants, and compliance agents. We also need to integrate with the banking sector. We would be the first and only guild to do this.

We are on the side of regulation, one that fosters entrepreneurship and the development of the tech sector in this country. Venezuela has the broadest regulatory framework in Latin America. We are making proposals to the regulator and calling for dialogue.

We are trying to show that we can have a regulated, professional sector that has nothing to do with corruption and other illicit activity that has taken place with crypto assets. We want to invite domestic and international firms, as we have the potential to be the leading country with crypto assets in the region.

You are taking BitBase, a Spanish company, to Venezuela. What are you planning to do here?

I was living in Spain, but I’m from Venezuela and I have seen the immense potential of the sector. We are a “phygital” business, so as well as an online exchange, we have physical stores and ATMs where you can buy and sell crypto assets and fiat currency in a fast, secure and low-cost way. As I said before, this part of our business is extremely important in a country like Venezuela. This is why we are evaluating possible scenarios with exchanges that are working within established norms.

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