Analysts say a crypto drought contributes to the Venezuelan currency's nearly 40% drop against the dollar

According to reports, the government's need to make seasonal payments and its lack of liquidity to intervene in the currency market are two factors that contribute to this, but some also point to cryptocurrency as a contributing factor.

The value of the bolivar in Venezuela is falling

After experiencing a recent period of relative stability, the value of the bolivar, the country's currency, has been declining at an alarming rate.

In parallel markets, the currency's value has fallen by almost 40% compared to the US dollar, frightening citizens concerned about the rapid devaluation.

Per the well-known price index Monitordolar, on October 25, the price of one dollar was 9.05 bolivars. On No. 26, the exchange rate rose to 12.63 bolivars for every dollar.

There are numerous justifications for this drop.

Analysts claim that this decline was anticipated because of the increased spending during the Christmas season due to the increased liquidity created in the market by the bonuses and payments that the government and other businesses give employees.

This is the section of the theory that economist Jose Guerra, a Venezuelan, has developed regarding this matter. Guerra stated:

“Demand for bolivars has fallen due to high inflation, so when bolivars go into circulation, the public turns to buying goods and dollars to hedge against inflation and devaluation.”

The director of the economics research company Ecoanallitica, Asdrubal Oliveros, adds that the Central Bank of Venezuela has been unable to intervene by adding liquidity to the authorized exchange market.

The Venezuelan Peso also lost 35% of its value against the US dollar in a single week in August.

The Impact of Crypto

Oliveros thinks this situation is made worse by a crypto element in addition to the usual suspects.

According to Oliveros, market makers who used cryptocurrency exchanges to introduce these funds into the nation supplied most of the parallel currency market, independent of governmental intervention.

But because of the market's continuing decline and the lack of trust in centralized exchanges brought on by the failure of FTX, one of the largest cryptocurrency exchanges in the world, these market makers have reduced their exposure, making the market less liquid and adding to the dollar shortage.

The economist describes the current situation as a “perfect storm” for devaluation to continue growing and expects that the exchange rate will increase as these issues worsen over the coming days.