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On February 4th, with an 87% approval rating, President Nayib Bukele of El Salvador was successfully reelected, having made Bitcoin the country's legal tender during his term.
Over two years ago, El Salvador gained attention for becoming the first country to adopt Bitcoin as legal tender, making President Nayib Bukele, a supporter of Bitcoin, an "international" Key Opinion Leader (KOL). Currently, Nayib Bukele has 7.6 million followers on TikTok, surpassing El Salvador's total population (6.3 million).
In the over two years since Bitcoin was recognized as legal tender, El Salvador's Bitcoin policy has faced numerous controversies: opposition from the International Monetary Fund, losses of nearly $70 million from trading, and low adoption rates. However, Nayib Bukele's successful reelection seems to demonstrate to the world that El Salvador's Bitcoin experiment has not been the failure portrayed by mainstream media.
National speculation led to losses turning into gains
In June 2021, the Salvadoran parliament passed a bill approving Bitcoin as the country's legal tender. Three months later, on September 7th, the law took effect, making El Salvador the first country globally to adopt Bitcoin as legal tender.
On September 7th, Nayib Bukele announced the country's government had purchased the first batch of 200 Bitcoins, followed by approximately 700 more over the next two weeks. El Salvador's actions were jokingly referred to by the media as "the president leading the nation in speculation."
At the time, the cryptocurrency industry was in the midst of a bull market, with Bitcoin's price around $50,000 in September 2021, reaching a peak of $69,000 in November. Subsequently, Bitcoin's price plummeted, hitting a low of $15,450 in November 2022.
During the downturn, Nayib Bukele announced multiple purchases at low points. By mid-2022, El Salvador had spent around $100 million purchasing Bitcoin, with an average price of nearly $46,000 per Bitcoin.
At this price, during Bitcoin's lowest point, the value of Bitcoin purchased by El Salvador had shrunk by about two-thirds, resulting in losses of $66 million.
In response to societal questioning, Nayib Bukele stated, "Stop looking at the charts and enjoy life. Its value will increase significantly after the bear market. Patience is key."
Recent market trends seem to prove Nayib Bukele right. Although the bull market has not truly arrived, El Salvador's Bitcoin holdings are not far from profitability. With the approval of Bitcoin spot ETFs in the United States, El Salvador made a profit of $12.6 million from its Bitcoin investments.
Despite significant fluctuations in Bitcoin prices, El Salvador has not given up. Vice President Felix Ulloa recently stated that during Nayib Bukele's second term, Bitcoin would remain El Salvador's legal tender.
IMF: Significant Risks
As a Central American country known for poverty and violence, El Salvador's forward-thinking approach to Bitcoin has not been well-received externally.
The International Monetary Fund (IMF) stated in a November 2021 statement that Bitcoin should not be adopted as legal tender in El Salvador. Bitcoin poses "significant risks" to consumer protection, financial integrity, and financial stability, and El Salvador must immediately implement stronger regulations and supervision to protect the safety of funds in both dollars and Bitcoin through measures such as segregating reserve assets.
El Salvador rejected the IMF's advice, with its finance minister stating that no international organization could force El Salvador to do anything, and Bitcoin is a "sovereign" issue.
In response to El Salvador's policies, several US senators jointly proposed the El Salvador Cryptocurrency Accountability Act, requesting the State Department to report on El Salvador's legislation adopting Bitcoin as legal tender and plans to mitigate potential risks to the US financial system. For nearly 20 years, El Salvador has used the US dollar as its legal tender.
In response, Nayib Bukele stated that the United States has zero jurisdiction over sovereign and independent countries' affairs and should stay out of its internal matters.
In early 2022, the rating agency Fitch downgraded El Salvador's long-term foreign currency issuer default rating (IDR) from "B-" to "CCC". Fitch stated that El Salvador faced a $1.2 billion financing gap in 2022, increasing to $2.5 billion by 2023, with nearly $1.2 billion in external debt maturing.
In January 2023, Nayib Bukele stated, "For the past year, almost every traditional international news outlet has claimed that due to the Bitcoin gamble, El Salvador would default on its debt by January 2023. However, $800 million in bonds has been fully repaid."
However, after the International Monetary Fund delegation's visit to El Salvador, it responded that there was no risk to El Salvador because Bitcoin usage was still limited. Due to factors such as Bitcoin's legal tender status, government encouragement of using crypto assets, and promoting tokenized bonds, Bitcoin usage in El Salvador may increase, and potential risks still exist.
According to a recent survey by Chayanika Deka, in 2023, 12% of the Salvadoran population had used Bitcoin to pay for goods and services at least once, down from 24.4% in 2022.
In September 2023, the International Monetary Fund's negotiating team stated after visiting El Salvador that the visit was "very productive." Although not supporting Bitcoin as legal tender, they were working with El Salvador to address "technical issues" and minimize the risks of adopting Bitcoin as legal tender.
Entry of Tether, Binance, etc.
However, from the results of over two years of practice, Bitcoin has not made El Salvador worse off, and El Salvador has made some good progress in the cryptocurrency field.
To promote the implementation of Bitcoin as legal tender, El Salvador established the National Bitcoin Office at the end of 2022, aiming to manage all projects related to cryptocurrencies. In early 2023, the Salvadoran parliament approved a bill on issuing digital assets, establishing a legal framework for all digital assets, allowing the public issuance and transfer of digital assets, laying the legal foundation for its Bitcoin bonds.
In December 2023, the National Bitcoin Office announced that the Bitcoin bonds "Volcano Bonds" had been approved and were expected to be issued on the RWA securitization platform Bitfinex in the first quarter of 2024. In April last year, Bitfinex obtained the Salvadoran digital asset license.
The cryptocurrency exchange Binance has also entered El Salvador. In August last year, the Central Reserve Bank of El Salvador granted Binance a Bitcoin service provider license, and the National Cryptocurrency Commission granted Binance a cryptocurrency service provider license.
In June 2023, stablecoin giant Tether announced its participation in El Salvador's renewable energy plan worth billions of dollars, planning to invest $1 billion to build the renewable energy generation park "Volcano Energy" using solar and wind energy in volcanic areas, aiming to build one of the world's largest Bitcoin mining farms.
In May 2023, Jack Mallers, CEO of Lightning Network payment app Strike, stated that Strike had relocated its global headquarters to El Salvador to cope with increasing anti-cryptocurrency regulation in the United States.
Recently, El Salvador approved an immigration law granting citizenship to foreigners who donate Bitcoin to El Salvador's government and economic development projects.
Previously, the Salvadoran government jointly launched a free visa program with Tether, allowing foreigners to obtain residence permits and citizenship by investing $1 million in cryptocurrency in El Salvador. According to Reuters, some foreign promoters of digital currencies have immigrated to El Salvador, mainly in beach communities. |
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Post time 1-3-2024 10:02:54