El Salvador, the first country in the world to make Bitcoin legal tender, is starting to face the repercussions of its decision.
Still, in the wake of the crypto market crash and looming national debt, President Nayib Bukele is enthusiastic about integrating the digital currency into El Salvador's economy and continues to purchase more and more bitcoins.
It has been a year since President Bukele made the announcement that El Salvador would be adopting Bitcoin as an official currency. The country ratified it into law on 7 September 2021.
Adoption Low Despite Incentives
Bukele's promises that Bitcoin would revolutionise the nation and help deliver financial access to the most vulnerable sections of the population enticed Salvadorans initially. However, the current situation presents a different picture.
Poor planning, lack of transparency, and macroeconomic conditions have led to what seems to be an abject failure of Bukele's Bitcoin project. Bitcoin transactions have so far only been made by 14 percent of the country's businesses.
The government's efforts to incentivise using bitcoin have also not been successful. In 2021, Bukele's government allocated 15 percent of the country's annual investment budget for efforts to increase the adoption of Bitcoin among the Salvadoran Population.
Chivo, a government-supported Bitcoin wallet and payments app was launched, with a reward of $30 being offered to citizens who downloaded it.
Though Bukele claims that 60 percent of the adult population downloaded the app, studies have shown that the use of Bitcoin has still not widely been adopted.
A study published in the National Bureau of Economic Research showed that only 10 percent of Chivo users continued to make transactions on the app after receiving their $30. Furthermore, it was found that users largely use the app to transact in USD rather than Bitcoin.
Bukele Doubles Down
It is clear that the Salvadoran people are not keen on adopting the cryptocurrency any time soon, and the recent crash of crypto prices has certainly not helped the situation. The global crypto market has become bearish all-round and El Salvador is no exception.
Still, President Bukele has remained steadfast in his support for investment in Bitcoin. Following the market crash last month, he took to Twitter to reassure Bitcoin investors, saying that its value will "immensely grow" after the bear market.
He even announced the purchase of 80 bitcoins for $19,000 each on June 30, with the comment 'thank you for selling cheap.'
Callous Handling of Bitcoin
Under Bukele's diktat, the Latin American country has spent nearly $100 million since 2020 in acquiring Bitcoins for its national treasury. It is estimated that these investments have reduced in value by 50 percent, costing the nation millions in losses.
There have also been concerns about transparency with regard to the government's Bitcoin investments. There is little to no information available about where the money to invest in Bitcoin is coming from, causing Salvadorans to be concerned about where their tax dollars are going.
Bukele has also come under fire for the apparently unprofessional and callous manner in which the country's Bitcoin purchases are made.
News website PYMNTS.com pointed out that in the above Tweet, the screenshots showed that the purchases were made on a centralised exchange website rather than an over-the-counter trading desk that would normally be more appropriate for a high-profile account like that of a country.
In response to such accusations, Bukele has said that he usually makes the trades on his phone, and also while naked.
Despite the apparent failure of Bukele's Bitcoin endeavours in El Salvador, he continues to enjoy public support, largely owing to his government's crackdown on organised crime and fuel subsidies.
El Salvador currently has $800 million in debt. With this, the massive losses from the Bitcoin investments, and increasing inflation, there is concern about whether or not Bukele's government will be able to continue subsidising fuel and other essentials for the people.
The government has already had to slash public spending on infrastructure once in 2021. The President is still undeterred by these things, with plans for more Bitcoin investments and new projects on the cards.
He has announced plans to build 'Bitcoin City' at the foot of the Conchagua Volcano. This would include a large scale Bitcoin mining operation powered by geothermal energy from the volcano.
Funds for this project were supposed to be raised through 'volcano bonds' worth $1 billion which were supposed to go up for sale in March. However, they have not appeared yet.
President Bukele and his government are nonetheless confident that they will be able to raise funds for the project and clear their dues.
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