Tuesday, November 29, 2022

El Salvador: Gamble on Bitcoin, A Hit or A Miss?

In September 2021, El Salvador made history as it became the first nation to officially adopt Bitcoin (BTC) as a legal tender. The report was greeted with fanfare even as the crypto community took in what they felt was the beginning of more mainstream adoption of cryptocurrency.

Soon enough, El Salvador became worthy of emulation. And by April 2022, The Central African Republic followed in its footsteps, making Bitcoin a legal tender as well.

The Gamble

With President Nayib Bukele at the helm of the affairs of the country, there was a persistent push for Bitcoin. But it wasn’t exactly surprising. Bukele is a well-known crypto advocate who earned himself the title of “The Bitcoin President”. About making Bitcoin a legal tender, Bukele opined severally that the initiative would bring foreign investment, generate jobs and ultimately improve the country’s economy.

Apart from adopting Bitcoin as a legal tender, El Salvador took yet another leap on Bitcoin in November 2021. This was when Bukele decided to build what he dubbed the “Bitcoin city.” According to the plans, the city would be funded by issuing $1 billion in government bonds. And while half of those revenue bonds will be used on the city, the remaining half will be used to buy Bitcoin. Interestingly, however, the initial plans also include using the gains from the Bitcoin investments to repay the bondholders.

A year later, however, especially considering how far down the price of Bitcoin has come, it is a wonder what can be made of El Salvador’s huge bet on Bitcoin. From all indications though, it appears that the daring financial experiment is proving to be an utter failure.

Did El Salvador Hit or Miss?

Salvadorans may cheer about the fact that the $1 billion Bitcoin bonds scheme has not materialized yet. Nevertheless, the Bukele-led government has invested no less than $100 million “buying the dip” so far. And while that is a well-known mantra in the crypto world, the dip looks to be getting uncontrollably deeper these days.

As of publication, all the Bitcoin that El Salvador currently holds have a combined value of less than $50 million. Per CoinMarketCap data, BTC currently trades at $19,569. And that is despite Bukele’s government buying its BTC at an average price of $40,000.

Apart from the losses from its purchase of Bitcoin, El Salvador also created an app called “Chivo Wallet.” The app was planned to bolster the country’s crypto push, promising cost-free transactions to users. In addition, the Chivo wallet also came preloaded with $30. But as it turns out, the incentive was not enough to pull massive adoption of Bitcoin in the region.

As published in a February survey, less than 400 of 1,800 Salvadoran households were using the app to transact. Whereas, it might be noteworthy that, at least, double that number initially downloaded the app. However, some only did so to claim the $30 incentive.

For what it’s worth, El Salvador is suddenly back under the spotlight. This is a result of crypto enthusiasts trying to determine whether or not, reasonable progress is being made in its constant push for crypto.

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