Two years ago, El Salvador surprised the world when it became the first country to make Bitcoin an official currency. Journalists from around the world traveled to the Central American nation of 6.3 million people, known for its beaches and its diaspora in the United States, to document a new monetary reality. When the new cryptocurrency law came into effect on September 7, 2021, it felt like an atypical moment in which a small country briefly captured the attention of the entire world.
Interest has waned, but the experiment continues. It’s tempting to classify the Bitcoin Law, as the legislative project that made the digital asset legal tender was called, as a success or failure. In President Nayib Bukele’s El Salvador, nothing is that simple. The country’s Bitcoinization is difficult to analyze because it is opaque and pursues various goals: financial inclusion, gains for public finances and the reputation of the leading president.
The experiment began with several purchases by Bukele’s government. The exact amount of Bitcoin that El Salvador has in its international reserves is not known since the government does not keep public records and the closest thing to a purchase announcement are short publications by the president on his social networks. There is an internet portal that maintains its own account and estimates that El Salvador has lost 37% of the value of its investments in Bitcoin, the equivalent of 45 million dollars, due to the fall in the price of the digital asset since 2021. El Salvador currently has 76% worth of Bitcoin .5 million US dollars. As is often the case in the “crypto world,” as the industry is called, the nayibtracker.com portal contains no information about its owners or who manages it.
A protest in front of the Constitutional Monument on June 1st this year. Alex Pena (Getty Images)
To introduce the currency to the population and use it for all types of transactions (from buying a doll on the street to buying a property), the government opened a digital wallet called Chivo with the equivalent of $30 in Bitcoin for every citizen . Hundreds of them were hacked and their money and identities were stolen.
Maybe that scared a lot of people. One of the advantages of cryptocurrencies is the speed at which remittances can be sent from abroad, and this is encouraged by the government. However, according to the latest data from the central bank, only 1.3% of remittances this year were sent via digital wallets that use cryptocurrencies. In comparison, according to specialized firm Chainalysis, 4% of remittances to Mexico are made via cryptocurrencies.
This week, Ark Invest, an investment research firm well-known to cryptocurrency fans, caused a stir on social media when it released a report claiming that Bitcoin adoption in Argentina is outpacing that in El Salvador. “It is understandable that Salvadoran citizens prefer to transact in dollars, which became legal tender in El Salvador in 2001 and have protected purchasing power from the inflation and devaluations that have ravaged other countries in the region,” it said the report signed by analyst David Puell. “In contrast, the price of Bitcoin has been quite volatile amid growing concerns as Bitcoin strives to evolve into a monetary system with greater liquidity and global acceptance,” Puell wrote.
“This news makes a lot of sense,” says Mónica Taher, vice president at RocketFuel, a global cryptocurrency payment processing company. Taher was director of technology and innovation at the Bukele government’s economic development agency, InvestSV, until October. In addition to the differences in size between the two countries, a group of technology companies that are now a reference in the sector grew organically in Argentina over at least two decades, explains Taher.
During her time in government, she was responsible for attracting and guiding companies interested in operating in the country. “There was an avalanche of companies that we didn’t even know what to do,” the former official recalls. “Everyone was enthusiastic, especially in the first year, and it was very nice to see a kind of reverse migration: it was not the Salvadorans who emigrated to the United States, but these foreigners from every country that existed who made the decision .” move.”
Amid interest from companies in the Central American country, the Central African Republic announced in April 2022 that it would make Bitcoin and other cryptocurrencies legal currencies. But their experiment failed and less than a year later, Congress repealed the legislation.
“For me, the goal of using Bitcoin in El Salvador is to increase people’s economic freedom so that there are no intermediaries, while empowering women to control their own finances,” says Taher. But “if there is no coherent educational process, mass adoption in the country will take a long time,” warns the expert.
A few months ago, the Bukele government granted Bitfinex, a Hong Kong company founded in 2012, the first license to issue Bitcoin-denominated instruments such as bonds and/or stocks. Bitfinex, along with its sister company Thether, had to get their permission to operate in New York when the state’s attorney general said in February 2021 that they had “recklessly and illegally covered up” $850 million in losses. A few months later, the federal government fined that country $41 million for lying to their customers by claiming they backed each token or stablecoin with one U.S. dollar.
All this is an undeniable success for El Salvador, says Andrés Engler, journalist specializing in cryptocurrencies and former Latin America editor of the reference portal Coindesk. “At the press level, Bukele was on the cover,” says Engler. “That is undeniable. At the crypto industry level, El Salvador is now a strong name. Anyone in the industry you ask about El Salvador will recognize it and probably immediately mention Bukele. From that point of view, it seems to have been effective,” says Engler.
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