On Twitter, the young president of El Salvador, Nayib Bukele , announced that the country would now buy one bitcoin every day. This decision may seem surprising given the current, rather dramatic situation in the world of cryptocurrencies.
Indeed, the major bankruptcy of the FTX exchange platform led to the closures of other related companies such as BlockFi (owned by FTX Ventures). The fall of the dominoes of crypto companies has caused many investors to lose their crypto assets.
Now is the time for doubt and loss of confidence for centralized platforms and for cryptocurrencies in general.
And it is precisely in this specific context that Nayib Bukele announces that he has decided to buy bitcoin every day.
For his detractors, Nayib Bukele is overreaching and zealous to show his determination of his pro-bitcoin policy. However, should we see this simply as audacity? Is there not in this gesture a well-established strategy which explains Bukele's decision?
What is the outcome of the legalization of bitcoin in El Salvador?
It has been just over a year since El Salvador made Bitcoin legal tender. Indeed, on September 7, 2022, the young president, Nayib Bukele, announced that Bitcoin would improve the country's economic situation. He even proposed issuing " Volcano Bonds ," which would finance the country with bonds paid for in Bitcoin.
He added that this would attract new foreign investors while creating new business opportunities. Furthermore, adopting Bitcoin would reduce the country's dependence on the US dollar. (As a reminder, El Salvador has been using the US dollar for twenty years as a replacement for the Salvadoran "colon" after its collapse.)
A year later, newspapers rushed to answer the fateful question on everyone's lips: "Has bitcoin adoption been as 'beneficial' as the president promised?"
However, is it really reasonable to carry out an assessment of a policy after only one year of implementation? Is this not a conclusion that can only be hasty and incomplete?
This is clearly not the case for some "experts" who have published articles with radical answers on El Salvador's record. In the general press (especially but also in the so-called "crypto" press), the titles are evocative. We speak of "chaos", "fiasco" and total failure.
Judge by yourself:
This is just a small sample of the countless articles that have (hastily) published on the failure of El Salvador's pro-bitcoin policy...
President Nayib Bukele decided to respond publicly to all these publications. He published an article on Bitcoin Magazine to present his own assessment, supported by figures from the IMF and other international institutions. The title of his article is quite evocative, and a direct translation into English can be summarized as: " Stop swallowing the lies of the elites ."
–>>You can read the full translation of the article here.
The adoption of bitcoin has been a great success for the country's economy
Yes! It turns out that the results of the year were positive for the country as a whole! However, the economic context (need we remind you?) which followed the covid 19 pandemic and then the Russo-Ukrainian war was not advantageous.
What country could boast of having achieved an exceptional financial year under such conditions? Yet, despite the economic downturn, El Salvador appears to be posting promising figures for its economy. And it seems that Bitcoin has something to do with it…
In the words of the President of El Salvador, "in 2021, our GDP grew by 10,3%, tourism revenues grew by 52%, employment grew by 7%, new businesses grew by 12%, exports grew by 17%, energy production grew by 19%, energy exports grew by 3%, and internal revenues grew by 291%, all without increasing taxes. And this year, the crime and murder rate fell by 37%."
Of course, even if certain figures seem difficult to really measure, such as the drop in crime, it would seem that overall, the results are positive.
Here is the infographic that was shared showing the positive figures for the year 2021:
A drop in the price of Bitcoin which pushes the president to constantly “reinvest”
Bitcoin has lost over 70% of its value since 2021. That 's a fact. However, the decline in the price of Bitcoin and the cryptocurrency market in general is not enough to conclude that Bukele's policy has failed.
Bitcoin enthusiasts are used to the volatility of Bitcoin's price. For example, it's been announced countless times that " Bitcoin is dead " and that no one will use it anymore. Yet, for the past 14 years , it has steadily increased in value. Despite occasional dips, Bitcoin surpasses its all-time high every year, reaching the $60,000 mark in 2021.
Thus, as a good connoisseur of financial cycles (obviously), the President of El Salvador was not outraged by the drop in the price of bitcoin. The government had in fact purchased a total of 2381 BTC, when it was around $40,000. This therefore represents a "theoretical" loss of half of the capital invested in bitcoin.
We use the term "theoretical" because as Finance Minister Alejandro Zelaya clarified, the country has not sold its BTC (and therefore has not lost money). So, today, while bitcoin is trading around $16,000, the president has decided to buy one every day.
? Using the price of Bitcoin as a point of analysis to conclude on the success or failure of Bitcoin adoption in El Salvador is a conceptual error. Conversely, if Bitcoin reaches $60,000 again, we will also not be able to conclude that the experiment was a success. To judge the benefits of El Salvador's policy, there are many other factors to consider besides the price of Bitcoin...
Does bitcoin really improve the country's financial inclusion??
The first big advantage of using bitcoin in countries where financial inclusion is lacking is that it immediately provides financial infrastructure. This is then used for fund transfers (locally or internationally). In fact, on this level (which is far from anecdotal), bitcoin has considerably improved financial transactions. Salvadorans living abroad sent more than $50 million during the first quarter of 2022. This represents a significant financial windfall than the money from the Salvadoran diaspora.
On the Bitcoin network, it is possible to send and receive bitcoins in seconds and at lower fees. Faced with such prices, El Salvador's commercial banks have drastically reduced fees on each transaction. This had a beneficial effect for citizens who are not yet inclined to use bitcoin for their daily financial transactions.
In order to use bitcoin, the government has set up a suitable wallet: the "Chivo Wallet". This is a kind of mobile bank that therefore serves as an official bank to use bitcoin. Many people who - until now - did not have a bank account now have a cheaper and easier to use equivalent.
However, the transition is still difficult. Even if 4 million Salvadorans downloaded the application (out of a total population of 6,5 million), only 2% of transactions were made in bitcoin.
Slow adoption, as slow as it is in the most banked countries
Even if the figures aren't exceptional, there's no denying that financial inclusion is underway. For a first year – despite the criticism leveled against Bitcoin (and in particular by international institutions like the IMF ) – the figures are rather encouraging.
It seems that critics of the President of El Salvador's policies thought that the entire population would adopt bitcoin within a year....
This forgets that we are talking about one of the least banked countries in the world. When we see that it took more than 14 years in banked countries like France for 8% of the population to hold cryptos, we are entitled to expect the same deadline for Salvadorans.
We can also add that banked countries also enjoy a real ecosystem (influencers, companies, insurance, purchasing power, bank cards, etc.) that facilitates the purchase of bitcoin online. The difference between acquiring bitcoin in a developed country and an emerging country is immense. In countries like El Salvador, buying bitcoin is a much more difficult reality... It goes without saying that adoption is then "longer" than expected. The opposite would have been surprising for anyone with knowledge (even partial) of the country's infrastructure.
On this simple point, we can conclude that financial inclusion is underway, regardless of those who focus on the government's valuation of BTC capital, at the moment t.
A virtuous ecosystem creating new opportunities
Moreover, the initiative spearheaded by Nayib Bukele has generated numerous small local initiatives. One example is the village of " El Zonte ," which has become a true ecosystem for Salvadorans and Bitcoiners from around the world.
The village has become a real hub where residents and tourists concretely experience living with bitcoin as their main currency. The result is astonishing if we consider that many people are now opening their businesses without fear of being rejected by the bank. Anyone can instantly pay in bitcoin for the services and products they want. The village has seen its unemployment rate drop as business opportunities have exploded.
An entire ecosystem is taking shape and benefiting the entire population.
Thus, young people who had no other prospects for social advancement can today find jobs linked to blockchain. Employability is a priority in the country and bitcoin opens up new opportunities.
Is Nayib Bukele right to buy more and more bitcoin? YES!
The president may be taking risks but the positive results lead us to believe the opposite. He seems to be in control of the situation and seems to be decisive in his policies.
One can only wonder at the IMF's suggestions, which had urged the country to "remove Bitcoin's legal tender status" or risk losing access to funding. In statements reported by the newspaper La Tribune , the IMF asserted that "there are significant risks associated with its use for financial stability, financial integrity, and consumer protection ." The president stood firm against the IMF and decided to maintain Bitcoin as legal tender. The IMF and rating agencies like Fitch Ratings and Moody's then immediately downgraded El Salvador's credit rating.
This certainly explains why so many unscrupulous journalists rushed to write articles on a subject they don't understand. After all, who can truly challenge the most senior economists in the intelligentsia , and especially the IMF?
Yet the IMF… Ugh, do I need to remind everyone of the infamous “structural adjustment” policies advocated by the IMF that were disastrous in Africa? Having such audacity after such a failure seems to warrant a certain degree of restraint… The IMF’s recommendations were very clear on that point as well, and it resulted in decades of debt and stagflation on the continent, which is still struggling to recover today…
Obviously, the young president did his own research...
Useful resources:
- https://cointelegraph.com/news/el-salvador-celebrates-bitcoin-anniversary-a-year-of-ups-and-downs
- https://bitcoinmagazine.com/culture/el-salvador-bitcoin-one-year-later
- https://www.bfmtv.com/crypto/bitcoin/la-transition-vers-le-bitcoin-du-salvador-vire-au-fiasco_AV-202209080229.html
- https://www.nationalreview.com/2022/09/the-verdict-is-in-for-el-salvadors-bitcoin-experiment-it-failed/
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