A year ago, El Salvador became the first country to make Bitcoin legal tender, with the Central American country adopting the US dollar in 2001 to replace its colon.
President Naib Bukele has announced that cryptocurrency Guaila will bring multiple economic benefits.
Making Bitcoin legal tender will help attract foreign investment, create jobs and “at least push humanity in the right direction a little bit.”
The ambition extends to building an entire “Bitcoin City” – a tax-free paradise by issuing a US$1 billion government bond. The plan was to spend half of the proceeds from the bond sale on the city and the other half on buying bitcoin, with the proceeds used to pay bondholders.
Now, a year later, there’s more than enough evidence to conclude that Buccaneer — who has dubbed himself “the world’s best dictator” in response to criticism of his creeping authoritarianism — doesn’t know what he’s doing.
This bold financial experiment turned out to be an almost complete failure.
Bitcoin legal tender
Making Bitcoin legal tender made more sense than allowing Bitcoin to be used for transactions. That was already possible in most (but far from all) countries.
If a Salvadoran wants to pay something in bitcoins and the recipient is willing to accept them, they can.
But Buckele wanted more. Bitcoins are a legal tender. He had. to accept them. such as Act of 2021 “Every economic agent who receives any good or service must accept Bitcoin as payment,” he said.
To encourage bitcoin adoption, the government created an app called “Chivo Wallet” (“chivo” meaning “cool”) to trade bitcoins for dollars without transaction fees. It is also pre-loaded with US$ 30 as a bonus (the average weekly income is about US$ 360).
However, despite the law and these incentives, Bitcoin was not accepted.
Welcome with a little excitement
A nationally representative survey of 1,800 Salvadoran households in February found that 20% of the population used a Chivo wallet for bitcoin transactions. More than double that number downloaded the app, but for asking US$30.
Of the respondents who responded, 20% of business owners said they accept Bitcoin as payment. These were typically large firms (in the top 10% of firms in size).
Business acceptance of Bitcoin in El Salvador
In March, a survey conducted for the El Salvador Chamber of Commerce showed that 14% of businesses were conducting transactions using Bitcoin.
It is causing huge losses.
Fortunately for Salvadorans, nothing came of the US$1 billion Bitcoin bond scheme. But Bukele’s government still spent more than $100 million buying bitcoins — which are now worth less than $50 million.
When Buckele announced the plan in July 2021, the price of Bitcoin was about $35,000. When the law came into force, on 7 September 2021, it was about US$45,000. Two months later, it reached a high of US$64,400.
It is now trading at around $20,000.
Bukele did Self-congratulatory tweets As for “buying the dip”, all the bitcoins bought by the government went above $30,000, with an average of over $40,000.
A year ago, Buckele was urging citizens to keep their money in Bitcoin. The loss is severe for everyone who did it.
Incorrect analysis
Buckel’s skepticism about Bitcoin – and economics in general – has been shown time and time again.
In June 2021 he He tweeted.: “Bitcoin market cap is $680 billion. If 1% is invested in El Salvador, that increases the GDP by 25%.
This suggests that he seems to think that Bitcoin was some kind of investment fund. It also showed the lack of domestic production. Foreign investment is not part of GDP. There is no increase in foreign investment or GDP.
In January 2022 Twitter With 50 million millionaires in the world, only 21 million bitcoins exist, he argued, “a massive price increase is only a matter of time.” “Imagine when everyone decides to have at least one #Bitcoin,” he said. Since then, the value of Bitcoin has halved.
The rest of the world was not impressed.
The Bitcoin scheme has negatively impacted El Salvador’s credit rating and relationship with the International Monetary Fund. Domestic borrowers had to offer higher interest rates as investors became more wary of the country’s credit.
In January, the IMF urged El Salvador to change Bitcoin’s legal tender status because of “significant risks to financial and market integrity, financial stability and consumer protection”. Bitcoin is notorious for fraud and other illegal activities, as well as its volatility.
pay attention He tweeted. An outrageous response involving a Simpsons-themed meme.
TwitterCC BY
This seems particularly rash since El Salvador has been seeking more than $1 billion in loans from the IMF.
International credit rating agencies Fitch downgraded El Salvador’s credit rating earlier this year, raising concerns over its Bitcoin policies.
Even undocumented currencies such as Zimbabwe and Venezuela, other countries with their own currencies have agreed to make Bitcoin legal tender.
If we look at El Salvador’s record, though, it’s different.
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