Two years of bitcoin in El Salvador de Bukele: an opaque experiment with a little-used currency

Two years ago, El Salvador stunned the world by becoming 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. On September 7, 2021, when the new cryptocurrency law came into effect, it felt like an atypical moment in which a small country briefly held the attention of the entire world.

Interest has dropped, but the experiment continues. It is tempting to classify the Bitcoin Law, as the legislative project that made the digital asset legal tender was called, as a success or a failure. Nothing is that simple in El Salvador under President Nayib Bukele. The bitcoinization of the country is difficult to analyze because it is opaque and has several different objectives: financial inclusion, gains for public finances and the reputation of the leading president.

The experiment began with several purchases by the Bukele government. The exact amount of bitcoin that El Salvador has as part of its international reserves is not known, since the Government does not keep a public record and the closest thing that exists to a purchase announcement have been brief publications by the president on his social networks. There is an internet portal that keeps its own account and estimates that El Salvador has lost 37% of the value of its investments in bitcoin, equivalent to 45 million dollars, with the fall in the price of the digital asset since 2021. It is estimated that El Salvador He currently has $76.5 million in bitcoin. As often happens in the “crypto world”, as the industry is known, the portal nayibtracker.com It does not include information about its owners or who manages it.

To introduce the currency to the population, and with the idea that it be used in all types of transactions (from the purchase of a pupusa on the street to a property), the Government opened a digital wallet called Chivo with the equivalent of 30 dollars in bitcoin for every citizen. Hundreds of them were hacked and the money was stolen along with their identity.

Perhaps this scared many. One of the benefits of cryptocurrencies is the speed with which remittances can be sent from abroad and this was promoted by the Government. But only 1.3% of remittances were transferred using digital wallets that use cryptocurrencies so far this year, according to the most recent data from the central bank. In comparison, 4% of remittances sent to Mexico are made through cryptocurrencies, according to the specialized firm Chainalysis.

This week, an investment research firm known to cryptocurrency fans Ark Invest lit up social media when it published a report in which it claims that bitcoin adoption in Argentina surpasses that of El Salvador. “It is understandable that citizens of El Salvador prefer to transact in dollars, which became legal tender in El Salvador in 2001 and has protected purchasing power from the inflation and devaluations that have devastated other countries in the region. ”, says the report signed by analyst David Puell. “In contrast, the price of bitcoin has been quite volatile in the face of growing problems as it strives to evolve toward a monetary system with greater liquidity and global adoption,” Puell wrote.

“This news makes a lot of sense,” says Monica Taher, a vice president at RocketFuel, a global cryptocurrency payment processing company. Taher was the director of technology and innovation for the Bukele government’s business promotion agency, InvestSV, until October. In addition to the difference in the size of both countries, in Argentina a cluster of technology companies grew, organically, for at least two decades that are today a reference in the industry, explains Taher.

During her time in government, she was in charge of 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,” recalls the former official. “Everyone was excited, especially the first year, and it was very nice to see a kind of migration in reverse: it wasn’t the Salvadorans who were migrating to the United States, now it was these foreigners from all the countries there were who decided to move.”

Seeing the interest of 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 reversed the legislation.

“The objective, for me, of the use of bitcoin in El Salvador is to increase the economic freedom of the people so that there are no intermediaries and, within that, empower women to control their own finances,” says Taher. But “if there is no coherent educational process, mass adoption will take a long time in the country,” warns the specialist.

A few months ago, the Bukele government granted the first license to issue bitcoin-denominated instruments, such as bonds and/or shares, to the company Bitfinex, founded in Hong Kong in 2012. Together with its sister company, Thether, Bitfinex had to leave to operate in New York when, in February 2021, that state’s attorney general declared that they “recklessly and unlawfully covered up” losses of $850 million. A few months later, the federal government in that country fined them $41 million for lying to their clients by saying that they had backed each tokeneither stablecoinwith one US dollar.

There is an undeniable success for El Salvador in all this, says Andrés Engler, journalist specialized in cryptocurrencies and former editor for Latin America of the reference portal Coindesk. “At the press level, Bukele was on the cover,” says Engler. “That is indisputable. At the crypto industry level, today, El Salvador is a strong name. Anyone in the industry that you ask about El Salvador recognizes it and will probably name Bukele right after. From that point of view it seems to have been effective,” says Engler.

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