El Salvador adopted Bitcoin as legal tender in September 2021, since then a lot has happened in the crypto sphere, with a mini bull market and a strong bear market. A lot of news is calling the Bitcoin move deadly for the country, so we are going to take a look at the real situation.

El Salvador’s total investment in Bitcoin

Bitcoin in El Salvador

First of all, let’s start with a summary of all the major, and official investments that the Salvadoran government has made in Bitcoin. These investments were mostly reported by the country’s president, Nayib Bukele, a special figure in the country, hated by some and loved by the Bitcoin and crypto community.

Thanks to the Nayib Bukele Portfolio Tracker we can analyze the trades made by the Salvadoran government. The president tweeted about 10 trades, the first one was on September 6, 2021, when he bought 200 bitcoins for an average price of 51,769.06 dollars, and the last tweet was on May 9, 2022, when he bought 500 bitcoins for an average price of 30,744.00 dollars.

In total, the Salvadoran government has declared the acquisition of 2,301 bitcoins, with an average price of $45,908.42, for a total of $105,635,283.47, the current value of this investment is estimated at $46,659,355.86. All these numbers are based on the time of writing this article (June 23, 2022). Hence, the relative loss is estimated at $58,975,927 or 55.83%.

Regarding this aspect, the current situation in El Salvador seems negative. Nevertheless, this investment was never made with the short term in mind. Nayib Bukele initiated a worldwide movement with the aim to change the balance of power with a neutral currency, decentralized, and not controlled by a foreign government, unlike US dollars.

The total Bitcoin investment is estimated at between 3 to 5% of the total reserve of El Salvador. Contrary to what many media outlets are reporting, El Salvador is not at risk in this bear market, and that’s even if Bitcoin continues to crash. 

Bitcoin adoption in the country

Bitcoin in El Salvador

Now that we know the numbers behind the Bitcoin investment, let’s see if this is really changing the lives of people in the country. We will use the latest study available, from April 2022: Are cryptocurrencies currencies? Bitcoin as legal tender in El Salvador.

The first critical point is that most of the people who downloaded the Chivo wallet, the national wallet created by the government for mass adoption in the country, did not use the wallet after using the 30 dollars bonus intended to boost adoption.

The median user reports no ATM withdrawals or payments sent or received in bitcoins in a given month,” the report said. Less than 60 percent of citizens with a cell phone with Internet access have downloaded the Chivo Wallet.

According to the report, Chivo is not widely used to receive remittances from abroad. These numbers align with recent reports from the Central Bank of El Salvador that 1.6% of remittances were received through digital wallets in February. Remittance makes up very important data in this situation, as it was one of the president’s key points in his project to adopt Bitcoin.

In the first quarter of 2022, we found almost no new adopters and the share of bitcoin remittances is at its lowest point since the launch of the Chivo Wallet,” informs the report. The study also suggests that 40% of all downloads occurred in September 2021, with virtually no downloads in 2022.

Another important point in the report is the fact that the Chivo wallet is not really used to receive remittances. Both the report and the Central Bank of the country declared that only 1.6% of remittances were received through digital wallets in February 2022. Approximately 70% of Salvadorans receive remittances. 

President Bukele stated many times the fact that companies were charging a high price for remittances when he was introducing Bitcoin as a legal currency, he estimated that Salvadorans would save up to 400 million dollars a year by using Bitcoin as a remittance channel. 

We also understand that the strong fluctuation in Bitcoin is really hard for users in El Salvador to stomach. According to Salary Explorer, the salary range for the country spans from $430 to $7,610, with an average of $1,710 per month. This shows that the lowest earners cannot support a 50% reduction in their salaries.

A unique tourist attraction

Bitcoin in El Salvador

Even if the adoption in the country is pretty complicated, El Salvador is now enjoying an international reputation as the first country where you can pay for everything in Bitcoin.

This status combined with the country’s beautiful beaches created a massive boom in tourism, from crypto investors to curious travelers willing to visit and see if it really was possible to pay for a Big Mac in Bitcoin.

According to the minister of tourism, Morena Valdez, the country saw an increase of 30% in visitors since the adoption of Bitcoin, with 60% of tourists coming from the United States where Bitcoin is particularly popular and accepted, especially in states like Florida and Texas where legislation is pro-bitcoin.

We had projected $800,000 in foreign exchange, but we obtained more than $1,400 million of income in foreign currency,explained the minister of tourism.

This Bitcoin tourism is reshaping the country, which can be seen on many of its stunning beaches, as restaurants and hotels are changing their names by adding the word Bitcoin, with almost all tourist facilities accepting the currency.

Some declared that they are immediately selling to dollars, to simply use Bitcoin as a way to attract tourists but not as a real currency, whereas others believe in this project and the president’s vision.

Other reforms in El Salvador

Bitcoin in El Salvador

El Salvador is therefore strongly enjoying its popularity as a new crypto destination. Many investors are also waiting for the finalization of citizenship through the investment program promised by the president, where the initial idea was to offer citizenship to any investor willing to invest 3 BTC in the Salvadoran economy.

Another big announcement was the so-called “volcano bonds,” the name of which refers to the use of Geothermal Energy from volcanoes to harness clean energy in order to mine Bitcoin. The volcano bonds started as sovereign bonds, but lately were described as securitized corporate bonds; they are currently on hold according to the minister of finance and the president. These delays are officially due to the conflict between Russia and Ukraine and the bear market in the crypto economy.

Lastly, “Bitcoin City” is the major project that was announced by the president of El Salvador in November 2021. Some pictures were posted on Twitter by president Bukele, where we can see a big Bitcoin sign in the center, a seaside, many trees, and a pretty unique city shape. Bukele declared “In this Bitcoin City, we will have digital and technological education. Geothermal energy for the entire city and efficient, sustainable public transportation. (…) Invest here and make all the money you want. It will be a completely ecological city, which will operate and be powered by a volcano.”

So far none of these projects have officially started.

El Salvador influences other countries

Bitcoin in El Salvador

While most observers were waiting for a new country, like Panama or Venezuela, in Latin America to follow the path of El Salvador, the Central African Republic surprised everyone with the very fast adoption of Bitcoin as a legal currency.

But not everything is about Bitcoin and its adoption. Many south and central American countries have developed and are developing new regulations to allow people to pay, receive, and use cryptocurrencies. For instance, Brazil adopted a law that allows people to buy real estate in cryptocurrency, while Panama will officially become a tax haven in the Americas with a 0% tax on capital gain for cryptocurrencies.

While Argentina’s population is aggressively adopting cryptocurrencies to deal with strong inflation in the country, the IMF is putting strong pressure on the government to slow down crypto adoption. Such practices from the IMF were also noticed toward El Salvador, however, the country decided to ignore their warnings.

Lastly, in May, El Salvador invited central bankers and financial authorities from 44 countries to attend a financial inclusion event about Bitcoin. This mega event was mostly attended by African and South American countries.


Bitcoin in El Salvador

El Salvador is not in a current state of monetary revolution through Bitcoin. Nevertheless, a lot has changed since 2021 and the country is slowly on track to a new model. Compared to most countries in the world, adoption is higher, the government and regulators are open to change, and the president’s biggest victory was putting El Salvador on the media map. The biggest threat for the country is strong pressure from International financial authorities regarding their Bitcoin adoption, but the government seems pretty confident in its strategies and future plans.

Author: Alexis Patin
#Bitcoin #Cryptocurrency