Source: ARK Disrupt Issue 128: June 12, 2018. By @wintonARK

In Venezuela, person-to-person bitcoin trading has again elevated, as shown in the chart below. Apparently, the local population is resorting to the cryptocurrency as it tries desperately to protect its purchasing power and savings.

ARK Disrupt Issue 128 Graph 1

Source: Coin Dance

Threatening to ravage the country’s wealth, the Venezuelan bolivar is in full-fledged hyperinflation, with annualized rates topping 30,000% (6/6/18), 31,000% (6/7/18), 37,000% (6/8/18). At 37,000%, without hedging against inflation, millionaires would become thousandaires in one year, only to watch their purchasing power disintegrate to less than $10 during the following year.

ARK Disrupt Issue 128 Graph 2

While a tragedy for the Venezuelan people, hyperinflation highlights the role that certain cryptocurrencies could play both to benefit consumers and to challenge monetary authorities in countries at risk for hyperinflation.

By transferring fiat currencies into certain cryptocurrencies, consumers will be able to protect their savings against monetary mismanagement but, as their preference for cryptocurrencies causes an acceleration in the rate at which fiat changes hands, they will exacerbate the hyperinflation. Businesses probably will prefer cryptocurrencies over fiat as well, transforming the country into a cryptoconomy in which the local currency no longer serves as a unit of account and the central bank loses its relevance. In other words, the velocity of money will explode.

During the transition to a cryptoconomy, the local banking system is likely to fall into disarray as all of its loans and deposits inflate into meaninglessness, while at the same time it lacks the technical capability to custody new assets. Capital market participants also will be staring at assets that are cratering, with bonds denominated in local fiat worth pennies or less and dollar-denominated bonds rendered unpayable. Indeed, consumers and businesses having resorted to cryptocurrencies will be able to salvage more than bondholders.

In the worst case, contagion could topple other vulnerable monetary regimes around the world as local consumers and businesses begin to diversify into cryptoassets, if for no other reason than “insurance “ in the face of the Venezuelan news, while bondholders begin to unwind holdings to hedge against contagion.

We are watching this space carefully.

View original article and other research here.


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Fred Pye

Frederick T. Pye

CHAIRMAN, CHIEF EXECUTIVE OFFICER & DIRECTOR

Frederick T. Pye is the Chairman, Chief Executive Officer and Director of 3iQ Corp. He is also the Chairman and Director of 3iQ Digital Holdings Inc. Mr. Pye is recognized for creating and promoting creative and unique investment products for the investment industry.

Mr. Pye has managed private client portfolios with Landry Investment Management and various other investment dealers. Prior to this Mr. Pye was Founder, President & Chief Executive Officer of Argentum Management and Research Corporation, a company dedicated to managing and distributing quantitative investment portfolios including the first long-short mutual fund in Canada.

He was also Senior Vice-President and National Sales Manager of Fidelity Investments Canada and an integral part of the team that saw assets rise from $80 million to over $7.5 billion in assets under management during his tenure. He also held various positions with Guardian Trust Company, which listed the first Gold, Silver and Platinum Certificates on the Montreal Exchange.

Mr. Pye obtained a Masters in Business Administration from Concordia University.