A Bitcoin Revolution took place in El Salvador. Almost nobody showed up. Has the Bitcoin revolution really failed in El Salvador?
At a seaside conference last year, El Salvador’s President Nayib Bukele took the stage to the sounds of fireworks and the AC/DC song “You Shook Me All Night Long” and declared that Bitcoin will transform his nation. The cryptocurrency had just reached unprecedented all-time highs in November, and El Salvador, the first country in the world to utilize it as legal tender, was just commencing its experiment, reports Yahoo.
After one year on the road, there are a lot less fireworks. Adoption has been slow, and the initial enthusiasm that swept the country last fall has been mitigated by Bitcoin’s price’s sharp drops from those dizzying levels. The U.S. dollar, El Salvador’s official reserve currency, has not been completely replaced by bitcoin; yet, it has also not brought about the financial devastation that some predicted. or at least not yet.
“No one really talks about Bitcoin here anymore. It’s kind of been forgotten,” said former El Salvador central bank chief Carlos Acevedo. “I don’t know if you’d call that a failure, but it certainly hasn’t been a success.”
When Bukele proclaimed Bitcoin an official currency alongside the dollar last year, he caught the world’s attention and sparked a cryptocurrency boom while also receiving condemnation from skeptics like bond dealers and the International Monetary Fund. Technical issues hindered Bitcoin’s Sept. 7 launch, which made for a poor start. Unfazed, Bukele welcomed Bitcoin supporters and cryptocurrency executives to his presidential office, where he still hosts them today, and shouted back at critics while sporting “laser eyes” on his Twitter profile image.
Salvadorans were given government-issued digital wallets that came with $30 worth of Bitcoin as part of the launch to help get things going. Taxes can be paid in Bitcoin under the law, and companies should embrace it as a form of payment except when they are technologically incapable of doing so. However, the coin’s volatility has alarmed users, and Bitcoin has gained traction in nations with inadequate payment networks or strong currency regulations, such as Argentina, Venezuela, and Cuba, according to Acevedo. “In El Salvador we have a good payments network, so why transfer money with cryptocurrency?” he said.
According to Acevedo, most Salvadorans have not invested substantial sums of money into Bitcoin, protecting many from the recent down market.
The government, on the other hand, began purchasing the token last year in anticipation of its legal tender introduction and has continued to add to its stockpile, prominently “buying the dip” during moments when Bitcoin plummeted. The end result? It is holding onto losses.
Only a relatively tiny fraction of respondents, according to a number of recent surveys, are still using digital wallets, and only a few companies have logged Bitcoin transactions. Only 2% of remittances, according to the central bank, have been made using bitcoin wallets.
The government continues to proclaim triumph, nevertheless. According to Finance Minister Alejandro Zelaya, Bitcoin has drawn international investment, tourists, and expanded financial access to a substantial portion of the unbanked population. Chivo, the government’s digital wallet, reportedly has more than 4 million members. This year, tourism is expected to approach pre-pandemic levels, and according to El Salvador’s central bank, 59 cryptocurrency and blockchain companies have registered offices there.
Zelaya claims that despite recent price drops hurting sentiment, the administration still intends to use blockchain technology to produce a Bitcoin-backed bond known as the “volcano token.” Advocates claim that El Salvador is well-positioned to attract businesses in a promising sector and develop into a center for financial services in the future, generating high-tech jobs.
“Assuming cars were a failure because after the very first year Ford started production in 1896 no more than 2% of the population had a car would’ve been quite myopic,” said Paolo Ardoino, chief technology officer at Bitfinex. “The government has a long-term vision. The crypto industry is highly technological and that is the type of industry that everyone should want in its country.”
Bitfinex will function as the volcano bond’s trading platform and will seek for a license to operate in El Salvador after the government passes a digital securities law to support the issuance. According to co-founder Mauricio Di Bartolomeo, the Canadian crypto loan and savings firm Ledn has seen a 678% growth in users in El Salvador over the last year. AlphaPoint, based in New York, was contracted to repair flaws in the Chivo wallet, and a number of other companies have also contributed to the country’s implementation.
“I don’t see adoption as low. I see a country where everybody has a Bitcoin wallet and everybody knows what Bitcoin is,” says Simon Dixon, founder of crypto financial startup Bank to the Future, during an August visit to El Salvador in which he met Bukele. According to him, Bank to the Future is presently hiring in El Salvador and plans to create an office there. “This is the first time I’ve ever met a government that has a president who has assembled a team that really operates with the urgency and impact of a fast growing company.”
However, Bukele’s drive to win over Bitcoiners carries a cost. The IMF has delayed approval of a $1.3 billion program for the country, citing Bitcoin concerns. At current prices, the government’s 2,381 Bitcoin purchased with public funds are worth $47.2 million, less than half of what the government paid for them. Moody’s estimates that the government has spent $375 million on the launch in total, including a $150 million fund to finance Bitcoin-dollar conversions and funds for the $30 Chivo sign-up bonus.
“The Bitcoin experiment promoted by the Bukele administration has significantly raised the market’s risk perception of the country,” said Fabiano Borsato, Chief Operating Officer of Torino Capital LLC. “It’s being implemented in a context of fragile public finances, high and persistent fiscal deficits and doubts about the rule of law in the country. This, in our opinion, will prevent El Salvador from accessing financing in the international markets under favorable conditions in the short and medium term.”
Despite widespread skepticism toward Bitcoin, Bukele is still incredibly well-liked among Salvadorans in large part due to his efforts to combat gangs, invest in infrastructure, and promote tourism.
According to a May survey by El Salvador’s Universidad Centroamericana Jose Simieon Canas, 71.1% of participants felt the Bitcoin law had no positive impact on their family’s financial situation. After increasing inflation, those surveyed identified Bitcoin as Bukele’s second-worst policy failure of the previous year.
“If you go to any market in El Salvador, you’re more likely to receive an insult than be able to purchase something in Bitcoin,” said Laura Andrade, director of the university’s public opinion institute, which conducted the poll. “It’s not a part of people’s daily routine.”