It has been a year since Bitcoin became legal tender in El Salvador. Cryptocurrency adoption has not been without problems in El Salvador, but it is difficult to shake off the various stories around Bitcoin due to the many competing interests that promote or manipulate Bitcoin. This article will filter this nonsense and describe how Bitcoin in El Salvador has spread one year after becoming legal tender.
Why El Salvador Filed a Legal Bid for Bitcoin
El Salvador has made Bitcoin ostensibly legal for several reasons. The government cited the following reasons:
- A large part of El Salvador receives remittances from the United States. Remittances from the United States actually make up 20% of El Salvador’s GDP. Transferring money to El Salvador is not cheap. Bitcoin transactions are cheap, so the government of El Salvador has made Bitcoin legal tender to reduce the fees citizens have to pay for remittances.
- Nearly 70% of Salvadorans do not have bank accounts. Dealing in Bitcoin can be a kind of bank account.
- El Salvador uses the United States dollar, which is experiencing rather bad inflation at the moment. El Salvador has moved to Bitcoin to hedge against US dollar inflation.
The three reasons mentioned above are all the official reasons given by El Salvador to legal tender for Bitcoin. There are likely other reasons why El Salvador should legally tender for bitcoin that they won’t say publicly.
It is also important to note that US dollars are still legal tender in El Salvador. The country still mostly uses US dollars despite Bitcoin legal tender. Anyway, the next section will discuss the fact that Bitcoin has been used in El Salvador since the country made it legal.
Bitcoin in El Salvador – Reality
This section will cover, point by point, the official reasons why El Salvador introduced legal Bitcoin and then describe the reality of the situation. First of all, money transfers in El Salvador. Do El Salvadorans Use Bitcoin for Remittances?
No, Salvadorans do not use Bitcoin for remittances. According to information from worldcoinstats.com, only 3.2% of all transfers are made in bitcoin, which is too bad. Of course, no one expected that number to jump to 100% overnight, but it’s a disappointing use compared to what many in the crypto space have expected.
Next, do Salvadorans use bitcoin in their daily transactions?
Again, not really. There is no confirmed data on this number, but it is estimated that nearly 80% of stores in the country do not accept bitcoin despite it being legal tender in the country. With this in mind, Salvadorans are not likely to use bitcoin for most of their transactions.
This was surprising because the Chivo wallet app (the official Bitcoin lightning network app for El Salvador) had more than 4 million downloads when it was released. However, that’s because new Chivo wallets received a free $30 deposit. The average salary in El Salvador is $12 a day, so $30 is a few working days for many Salvadorans. Of course many will download an app for $30 for free when they earn so little a day.
Finally, has Bitcoin acted as a good hedge against US dollar inflation?
Well, El Salvador has bought nearly $100 million worth of bitcoin over the past year at an average price of $45,000. The current price of Bitcoin is around $19,000. The US dollar inflation rate is currently around 8.2%, so El Salvador has lost more money by holding bitcoin than it would have if it had held the US dollar over the past year.
Of course, Bitcoin is a long-term thing for El Salvador, so it’s a bit ridiculous to announce this failure after only one year.
What went wrong with Bitcoin in El Salvador?
As you can see from the above points, Bitcoin in El Salvador has not been as successful as many people expected. However, there is little reason to be afraid. It has only been a year since El Salvador submitted a legal tender for bitcoin in the country.
The biggest problem with Bitcoin in El Salvador is that El Salvador has chosen perhaps the worst time ever to submit Bitcoin legal tender. They basically did this at the top of the bubble and then proceeded to buy the “low” any time the price went down – the problem was the price kept going down.
Anyone who got into Bitcoin at that time would be down about 50% right now. It has happened to many people, but in the case of El Salvador it has happened to the whole country. If El Salvador had invested in Bitcoin a year or two ago, the country would have gone up 500% on its investment and many would declare it incredibly successful.
This is likely to happen if the price of Bitcoin rises again, which is expected to happen after the Bitcoin halving. The next halving problem is a few years into 2024. Can El Salvador stay with Bitcoin for long? Or will the country abandon the cryptocurrency before the price recovers?
The other problem with Bitcoin in El Salvador is that the government has forced people to use it, which goes against a lot of cryptocurrency principles. In fact, is it even a cryptocurrency at that point?
We might argue that it’s not really a cryptocurrency if the government forces you to use it. The government specifically forced people to use the Chivo wallet app, which is notorious for having a lot of bugs. This has left a bad first impression on Bitcoin by many Salvadorans as they associate all errors with the Chivo app as problems with Bitcoin.
However, this is still a relatively minor problem. The biggest problem was that El Salvador chose the worst time to invest in cryptocurrencies, but it is still worth mentioning the other problem with the current system in El Salvador.
last thoughts
To summarize, Bitcoin in El Salvador has not been very successful one year after it was made legal tender. However, there is no need to be afraid. Bitcoin is a long-term project for the country, so if El Salvadorans can stick to their Bitcoin experience, they will likely see it succeed.
from San Jose News Bulletin https://sjnewsbulletin.com/bitcoin-in-el-salvador-1-year-later/
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