On September 7, El Salvador, through its President Nayib Bukele, became the first state to recognize bitcoin as a legal currency in addition to the dollar. Merchants, restaurants, companies, and even the state are therefore now obliged to accept its use as a means of payment. The objective was then to encourage remittances of money transfers to El Salvador made in particular by the exiled diaspora in the United States. According to Reuters, this would represent just over 23% of El Salvador’s Gross Domestic Product, or around 5 billion euros. With bitcoin having lost more than 70% since its peak around $68,000, how has the adoption of the flagship cryptocurrency turned out for the country?
END OF EUPHORIA
In order to carry out the project, El Salvador has set up an application that allows its inhabitants to use bitcoin, already downloaded by 4 million people out of a total of 6.6 million, i.e. more than 60% of the population. However, it was without counting on the volatility or the fragility of the queen cryptocurrency. Indeed, when these measures were taken, there was talk of a bitcoin at 45,000, or even up to 68,000 dollars. Currently, bitcoin has fallen back to around $20,000, which has pushed back the many projects the president wanted to put in place. According to the Salvadoran central bank, less than 2% of remittances from emigrants were made in cryptocurrency. Carmen Meija, a 22-year-old student, initially used cryptocurrency before declaring, “But the way things are going, I don’t trust it anymore, and I even deleted the app.”
The president does not hesitate to show his enthusiasm on Twitter about the fall of bitcoin by tweeting phrases like “buy the dip”, or “buy the dips”. He himself bought 80 bitcoins for around 19,000 dollars, bringing the country’s total to more than 2,350 bitcoins purchased over the last twelve months.
The adoption of bitcoin in El Salvador has also chilled major global bodies, such as the IMF. El Salvador was indeed in negotiation with the monetary authority for a loan of an amount of 1.3 billion dollars, the country being in risk of default with a debt exceeding 80% of the GDP. Loan that the International Monetary Fund was therefore unable to grant.
BITCOIN CITY: THE CRAZY PROJECT OF NAYIB BUKELE
It would indeed be the first city dedicated entirely to bitcoin. The president called on the architect Fernando Romero to imagine a futuristic city of 7,466 hectares which would be located in the south-east of the country, and would make it a paradise for the entire crypto-sphere.
The shape of the city would be round to recall the coin, ecology will be favored by highlighting pedestrian paths and cycle paths in particular.
Half of the project would be devoted to the construction of residential pavilions while the other half will provide various amenities for education, health and commerce. A large public square with a B, like Bitcoin, will be created to accommodate public gatherings.
However, as actualnewsmagazine.com points out, “The iconic Bitcoin City project was announced in November last year; it is reportedly partly funded by the sale of $1 billion Bitcoin Volcanic Bonds, the world’s first cryptocurrency sovereign debt product. Debt proceeds were a center of attraction during the height of the bull market. However, several delays in the past and a downturn in the bear market have cast a shadow of uncertainty.
Last month, Bitfinex Chief Technology Officer Paolo Ardoino told Cointelegraph that they were first awaiting a government issuance license, which would be granted after the planned Digital Securities Bill is passed. for September. However, there were no updates on the Bitcoin Bond launch in mid-October. »
THE REVERSE OF THE MEDAL?
If adopting a cryptocurrency as legal tender in a country seems to be a good way to gain autonomy in addition to being innovative, there are still several risks and disadvantages.
- The first barrier to this measure may be the implementation of this new currency. As seen above, an application had to be created in El Salvador, for example, to allow residents to pay in bitcoin.
- A problem arises with regard to financial interactions with other countries. If El Salvador decides that Bitcoin is a legal currency, this is far from being the case for all of its neighbors. If there is to be any settlement, it will be necessary to return to a “traditional” currency, also held by the counterparty. It is therefore a project that will eventually require adoption by other countries.
- Adopting a cryptocurrency as legal tender is a first. The world of cryptocurrencies has developed well in recent years, and has gained a lot of visibility over time, to the point that even people unfamiliar with the world of investment have heard of it, or even know what it is. acts. Nevertheless, this ecosystem still leaves room for doubt and uncertainty among most households, making El Salvador’s project complicated to promote. A survey by the Chamber of Commerce and Industry of El Salvador indicates that 86% of stores have never made a sale in bitcoin. This problem is also felt internationally, because it is not something that inspires confidence in the various external financial institutions, making joint projects difficult.
- Last drawback, and not the least, difficult to control, even with the democratization of cryptocurrencies: volatility. Bitcoin is known to be a particularly volatile asset, and El Salvador has seen its first purchased bitcoins lose 70% of their value until today, putting the country in financial trouble. Last January, the International Monetary Fund urged El Salvador to give up bitcoin for this precise reason, supporting at the same time the idea of mistrust towards this project.
Announced as such, however, El Salvador’s plan to adopt Bitcoin as its national currency cannot be considered revolutionary in the current state of affairs. Admittedly, the timing will not have been the most lenient, with a BTC which then approached its highest around 68,000 dollars in November 2021, and which has since lost more than 70% of its value (last price around 19,300 dollars to October 17, 2022, almost a year later). Moreover, such a project can only be effective if it is emulated, in order to be able to also benefit international trade, yet to date, no other country has followed the path opened up by Nayib Bukele.
Nevertheless, it should be noted that payment in bitcoins can be made today in hotels in Thailand, at McDonald’s in the city of Lugano in Switzerland, at the LG dealership in France or even at certain sites around the world. It is still too early to validate the democratization of this monetary revolution, but it is also too early to say that it was only a fad…
Directed by Mathis Erba, Charles Dhennin with the help of Marc Dagher
Article originally published on DT Expert
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Bitcoin and Salvador: the other side of the coin?
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