Petro Coin: A Global Crypto Confidence Trick from Venezuela?

Petro is the cryptocurrency of Venezuela, a country in economic turmoil. The President of Venezuela, Nicolás Maduro, announced that his government would launch the Petro back in December 2017. The announcement was met with skepticism and led to a crash in the value of Bitcoin.

Petro Coin is a cryptocurrency that has been brought to the world by Venezuela. The coin is claimed to be backed by the country’s oil reserves, but many are skeptical of this claim. Read more in detail here: petro, venezuela price.

This post is based on our network of contacts on the ground in Venezuela and is solely our view. President Maduro refers to Petro as a cryptocurrency, but TotalCrypto sees it as nothing more than a ruse to maintain his dictatorship in power as long as possible. Petro is nothing more than a way to keep selling debt to foreign investors, disguised as an oil-backed cryptocurrency. It’s a crypto trust scam; don’t fall for it.

Why Could Petro Be A Threat To Cryptocurrency Exchanges?

TotalCrypto predicts that Venezuela’s Petro “cryptocurrency” will collapse, and that this will be a significant source of bad news in 2018. We are concerned that the collapse of Petro would damage trustworthy cryptocurrency initiatives and generate bad mood in the cryptocurrency markets.

Indeed, Petro’s failure may be used as a justification for overregulation and suffocation of the cryptocurrency industry’s creativity. Even worse, Petro may be used as a reason to push a mainstream narrative that claims cryptocurrencies are used to enable fraud and criminal activity.

Since Bitcoin’s usage on the Silkroad tainted its image, cryptocurrency has come a long way. However, most people would agree that the taint from this event still lingers today. It’s virtually likely that some of you have discussed Bitcoin with relatives and friends who think that the cryptocurrency is mostly utilized by criminals.

We will explain why we believe Petro is not a true cryptocurrency in this post. Instead, it’s a ruse to raise foreign money in order to pay Venezuela’s creditors and keep the nation afloat for a little longer.

Simply said, if Petro fails, it will have a disproportionately unfavorable effect on cryptocurrency markets, and we must resist the urge to sow fear, confusion, and doubt.

What is the size of a Petro Coin?

According to CCN, Venezuelan President Nicolas Maduro stated that the Petro currency ICO pre-sale earned $5 billion. It’s unlikely that the Petro presale generated anything close to this amount. However, proving one side or the other is very difficult.

If Maduro is correct, Petro will be one of the top eight cryptocurrencies (if it were listed on Coinmarketcap).

What does it mean to “rob Peter to pay Paul”?

What Does This Have To Do With PETRO?

The Venezuelan economy is suffering from hyperinflation and US sanctions, which is no secret. Venezuela’s economy is highly reliant on oil, which accounts for 95 percent of the country’s exports. Venezuela, according to CNN, has no other source of foreign revenue. As a result, the nation is entirely dependent on the PDVSA (the state oil company).

Venezuela owes bondholders $9 billion in foreign currency bond payments in 2018:

PDVSA interest payments totaled $2.3 billion.
PDVSA principal payments totaled $0.84 billion.
PDVSA payments total $3.14 billion.

Venezuela has just $9.615 billion in foreign currency reserves in February 2018, according to sources. The gold reserves of the country are also included in this number. This implies that if Venezuela’s entire foreign currency reserves were liquidated, the government would run out of money in about a year.

With the economy suffering as a result of the sanctions, Maduro is eager to get foreign cash in order to make future bond payments and keep the nation afloat. Foreign currencies like USD and Ethereum / Bitcoin (which can be easily exchanged to USD) were provided as Petro payment options, which seems to be no accident. President Maduro stated that Petro sales included the following items:

40.8 percent in US dollars
EUR 6.5 percent
Ethereum is 18.4 percent.
Bitcoin is 33.8 percent.
Yuan is worth 0.2 percent.

It seems very probable that Petro investors’ money will be utilized to pay back Venezuelan bonds. Indeed, the whole Petro experiment might be seen as nothing more than a way for foreign investors to continue buying Venezuelan government debt.

Petro, on the other hand, is backed by oil, which Venezuela has enough of…

Five billion barrels of oil, according to Maduro, have been set aside to support the Petro coin. What is the location of this 5 billion barrels of oil? Is it kept safe so that the Petro cryptocurrency is adequately backed?

The United States possesses the biggest strategic petroleum reserves, with a total capacity of 727 million barrels, as seen in the graph below.

794,936,474.64 cubic meters is 5 billion barrels of oil1. This equates to about 795 million cubic meters.

One olympic-sized swimming pool has 2,500 cubic meters of water2.

If Maduro has put aside 5 billion barrels of oil someplace, that’s enough to fill almost 318 thousand Olympic swimming pools3.

That’s a lot of oil, and it’s strange that no one knows where this massive store of oil is kept. You’d think that such a storage facility would be difficult to conceal and that people on the ground would be aware of it.

Maduro seems to be referring to the 5 billion barrels of oil that are still in the ground, and that he is supporting Petro with prospective oil rather than usable oil.

It’ll be OK. We can get the oil later since it’s in the ground.

Venezuela has the world’s biggest known oil reserves, according to OPEC, with over 302 billion barrels of proven crude oil reserves underground.

Jose Toro Hardy, an economist who served on the PDVSA board of directors until 1999, highlighted the problems with Venezuela’s oil infrastructure:

“The difficulties began in 2002 and 2003, when President Hugo Chávez dismissed 20,000 PDVSA employees. That staff had an average of 15 years in the business, so they tossed away 300,000 years of expertise and knowledge,” says the report.

“None of the required investment and maintenance plans have been completed,” Hardy said. The company’s resources have been redirected to meet the government’s political objectives. Exploration, production, refining, and marketing are all part of the oil company’s purpose. It has now evolved into a political party devoted to importing food, constructing houses for the Housing Mission, resolving health issues for the Health Mission, and other activities unrelated to its mission.”

“There is not enough oil in Venezuela,” the former PDVSA board member said. “According to OPEC, we are producing 1,600,000 barrels per day, and our top goal is to pay our obligations with oil exports to China, Russia, and Cuba,” he said.

Venezuela was expected to default on its debt obligations in November 2017. The majority of it was paid, but only after the 30-day grace period had expired.

Maduro seems to be supporting Petro with oil that is still in the ground and cannot be extracted due to a lack of infrastructure. Even Venezuela’s friends, like as Russia and China, have refused to take over oil refineries in Paraguaná due to the high expense of reopening them.

Worse is to come: the state-owned oil company is bankrupt.

The PDVSA is the only source of income for the Venezuelan government.

“Venezuela and PDVSA have already defaulted to creditors, (and) the cashflow crisis now threatens the ultimate priority of rental, corruption revenue to the military,” says Siobhan Morden of Nomura Securities.

A former member of the PDVSA’s board of directors was quoted as saying:

“State businesses do not go bankrupt; it is Venezuela that is in shambles. PDVSA, which became the most important contributor to the development of the Venezuelan economy, is now accountable for the country’s impoverishment.”

“PDVSA’s continuing cash flow shortfall is massive. The Central Bank releases massive sums of money without assistance in order for the business to stay afloat. The money PDVSA gets is integrated into the money supply, which increases at a spectacular pace, resulting in increased demand for products. However, since there are no products in the nation and we are experiencing severe shortages, the result is increased prices, which has led to the world’s greatest inflation and a fall into an unparalleled period of hyperinflation in the Western hemisphere’s history.”

“The main source of poverty is inflation, and the primary driver of inflation in Venezuela is PDVSA,” Hardy said.

It will become apparent over time, but we believe that PDVSA debt holders will get PETROs in exchange for their debt. This approach would further obscure the default situation and allow the show to continue a little longer.

Does it really matter if Venezuela has the world’s biggest proven oil reserves if the oil infrastructure is destroyed and the state-owned oil firm goes bankrupt?

David Hay, a crypto YouTuber, shows us $100 in Venezuelan money.

The Long-Term Prospects Appear To Be Dreadful

According to our Venezuelan contacts:

In Venezuela, hardly no one pays taxes at the moment.
Almost all of the services are provided for free. Bills and tax collections are invoiced in Bolivares in arrears (meaning you pay the previous month’s bill today), and due to hyperinflation, the amount individuals pay is considerably less than the value of services obtained.

Most governments depend on tax collection for the bulk of their revenue, but it seems that the Venezuelan government cannot rely on this as a source of money. Even if the Venezuelan government wanted to, it seems doubtful that they would be able to restore their oil infrastructure.

The Confidence Illusion

Petro, according to Maduro, is a cryptocurrency. But isn’t a cryptocurrency supposed to be decentralized and uncontrollable by the government? Many people have presented Petro as a security token that is supposed to be backed by oil reserves.

The issue is this:

The oil isn’t visible above ground, and the Venezuelan government doesn’t have access to it.
Because of the devastation of Venezuela’s oil infrastructure, it’s doubtful that the country will ever be able to extract 5 billion barrels from the ground.
Despite the use of financial deception, it seems that the state oil firm (PDVSA) will not be rescued.
Petro token holders will not be able to exchange their tokens for actual oil, according to the white paper. If the cryptocurrency was really backed by a commodity, such as oil, couldn’t you exchange the token for the commodity it was supposed to be backed by? Our Venezuelan colleagues also said that there are no exchange houses in Caracas for converting Petro to oil, and that they are unaware of any intentions to establish one.

Petro, in our opinion, is neither a cryptocurrency nor a security token. Instead, it’s just a vehicle for continuing to sell debt to overseas investors and utilizing the proceeds to repay regular bond obligations. It’s a robbing Peter to pay Paul game.

Dressing Petro up as a cryptocurrency and claiming that it is backed by oil is a confidence trick. According to our study, Venezuela does not have 5 billion barrels of oil available above ground. The country’s oil infrastructure problems, along with the fact that the PDVSA is bankrupt, make us doubt the government’s capacity to access the oil that Petro is supposed to be backed by.

A President Who Inspires Belief

Venezuelan President Nicolas Maduro stated on March 22, 2018, that he has devised a plan to strengthen the national currency by removing three zeros. This modification would go into effect on June 4th.

Maduro seems to be making stuff up as he goes along.

We must question ourselves, with the Petro cryptocurrency, who is purchasing it. Who is the owner of $5 billion? These promises seem to be little more than smoke and mirrors, created in the hopes that some investors would read the headline and follow the claimed $5 billion by investing in Petro.

To protect the petrodollar, the US will go to great lengths.

If the Petro was truly backed by oil (as promised), this might cause considerably more problems for investors.

Almost every oil exporting nation in the world sells its oil in US dollars (the PetroDollar), forcing governments to keep a large amount of US dollars in their foreign currency reserves. This method allows the United States to issue a large number of new dollars without inflating its currency. Instead, the inflation is passed on to oil-exporting nations.

Naturally, the US administration does not seem to like nations who wish to abandon the Petrodollar:

Iraq

In 2001, Iraq abandoned the petrodollar and started selling oil in Euros. Iraq was attacked two years later, and the government was overthrown. The weapons of mass destruction that were claimed as the cause of the war were never discovered.

Libya

Libya’s leader, Muammar Gaddafi, believed he had hit upon a brilliant idea. The Golden Dinar was conceived as an African gold-backed currency. Gaddafi was also ecstatic to learn that this proposal had piqued the attention of African and Middle Eastern nations.

The US believed the Petrodollar was under danger in a major oil-producing area, and Hillary Clinton’s email on the topic was released. As a consequence of NATO’s assault, Gaddafi was murdered, the government was overthrown, and the concept of the Golden Dinar was extinguished.

Venezuela

It’s reasonable to assume that Maduro selected the term Petro to enrage the US and point a finger at the Petrodollar.

Historically, countries who challenge the Petrodollar have not fared well. Even if Petro were adequately backed by oil, investors must consider the possibility of US retaliation and the effect on Venezuela’s oil production capacity.

Money’s Masters Are Getting Into Cryptocurrency Markets

The following recent discoveries have gotten a lot of attention:

The Grayscale Bitcoin Trust gave the Rothchilds their first taste of Bitcoin.
George Soros’ family office has been given permission to trade cryptocurrency.
Through Venrock, the Rockefellers are investing in cryptocurrency (their venture capital fund).

The entrance of these well-known financial institutions into cryptocurrencies has been widely seen as a positive development. We’re not convinced…

“Buy When There Is Blood In The Streets,” says Baron Rothschild.
George Soros — Seems to be the kind of guy that finds markets, manipulates them by throwing gasoline on the fires, and makes a lot of money. In a single day in 1992, Soros shattered the Bank of England and destroyed the UK monetary system. He bet against the pound and profited handsomely from the devastation.
The Rockefellers earned their fortune in the oil business by establishing a monopoly. Keep that in mind while considering the Rockefellers’ cryptocurrency participation.

We trust that any failures of Petro will not be exploited to damage genuine initiatives or have a detrimental impact on cryptocurrency markets. We hope that any efforts by cryptocurrency market manipulators to sow fear, confusion, and doubt by using Petro’s collapse will be met with silence.

What Will Petro’s Price Impact Be On Bitcoin and Ethereum?

If Maduro’s assertions are accurate, he owns a little more than $2.5 billion in Bitcoin and Ethereum. Most people will be very dubious that Venezuelan President Nicolas Maduro has even a fraction of this quantity of cryptocurrency.

If Venezuela really have this much cryptocurrency, we may look at the bond repayment dates and include in a 30-day grace period for each payment. When there was panic in November 2017 about a possible payment failure by Venezuela, the government did end up paying the majority of the payment, but only after the 30-day grace period had passed.

With the 30-day grace period included in, the critical months for significant bond repayments in 2019 would be May, September, November, and January. If Maduro was using his bitcoin assets to finance repayments, we might see a lot of sell-side activity in the coming months.

We believe that every cryptocurrency investor should disregard any news concerning Petro and just remain calm and continue on.

Conclusion:

Only time will show Maduro’s real strategy for Petro, as well as the magnitude of its success or failure. There is a slight risk that if Petro fails, it will have a detrimental effect on genuine cryptocurrencies and will be used to depress prices or overregulate the market.

Our forecasts are as follows:

Petro is doomed.
Petro will be shown to be nothing more than a means of continuing to sell debt to foreign investors. It’s just disguised as an oil-backed cryptocurrency.
Proceeds from the Petro ICO will be used to repay Venezuelan bonds.
PDVSA (the Venezuelan state-owned oil corporation) will collapse.
Maduro’s ICO selling numbers will be revealed to be substantially overstated.

If the mainstream media tries to spread false information about Petro in order to undermine genuine cryptocurrency initiatives, we should continue to encourage the industry’s progress.

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Footnotes:

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DISCLAIMER: The activity of the cryptoassets discussed in this paper is uncontrolled. This post is not intended to provide financial advice. Always do independent research.

Petro Coin is a cryptocurrency that has been created by the Venezuelan government. The coin was originally intended to be used as a means of raising money for the country’s struggling economy, but it has since become more widely accepted as an investment vehicle. Reference: venezuela petro to usd.

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