Petro Bitcoin

The petro (a.k.a. the petro bitcoin, petrobitcoin, or petro-bitcoin) is a cryptocurrrency backed by the government of Venezuela. The currency was announced in late 2017 as a supposed means to deal with the dire economic situation in the country. Petro is supposedly backed, among other assets, by Venezuela's oil reserves and its purported goal is to help the Venezuelan government regain its monetary standing, tarnished by hyperinflation and economic stagnation.

In reality, the project has been controversial right from its very beginning. The one of the general ideas behind cryptocurrencies is their independence from governments. And while this idea might not be realistic as Bitcoin-related companies have to operate within specific legal systems, the petro is explicitly back by the Venezuelan government.

It does not help that the details of how the currency is supposed to operate have been in a state of flux. Initially, it seemed that the petro would by backed by Venezuelan oil reserves but later on, this changed to a mix of assets: oil, gold, iron, diamonds, with oil still being the dominant one (50%). The technical details of the currency have also changed with the petro moving from one protocol to another one. Also, a lot of the precise details of how the currency would be available are unclear.

The recent track record of the Venezuelan government as far as economic policies are concerned leaves a lot to be desired. The economy hit a strong recession and the inflation figures skyrocketed. One IMF forecast put the projected Venezuelan inflation rate for 2018 at 1,000,000% (!). Even if this figure turns out to be largely exaggerated, it shows the magnitude of the problems in the Venezuelan economy.

It does seem that any investors considering the petro should approach this cryptocurrency with extreme caution. It might be best to wait and see whether there actually is a market for petros and how much volume there is if such a market emerges. Even if petros are initially traded, it still might be prudent to wait some more and verify whether the claims that the currency is actually backed by natural resources is backed up by physical evidence.

In any case, rather than being the sign of a revolution where governments turn digital, we see the petro bitcoin as an extremely risky asset which any investor should assess with extreme caution.