A year of ups and downs
September 7, 2022 marks exactly one year since El Salvador became the first country in the world to adopt Bitcoin (BTC) as legal tender by enforcing the Bitcoin Law.
El Salvador’s President Nayib Bukele advocated for Bitcoin as legal tender last year, promising that Bitcoin adoption would benefit 70% of the local population who lacked access to banking services as of 2021.
The Salvadoran government also touted Bitcoin as a tool to attract foreign investment, create new jobs and reduce dependence on the US dollar in the country’s economy.
One can question the current real benefits of Bitcoin adoption in El Salvador, as Bitcoin has lost approximately 60% of its value since the country adopted the cryptocurrency as legal tender.
On this exact day one year ago, BTC was trading at around $46,000, according to data from CoinGecko. On September 6, 2021, the Salvadoran government made its first Bitcoin purchase, purchasing 200 BTC for $10.36 million, or an average price of $51,800. That stands in stark contrast to current BTC prices, as Bitcoin fell below $19,000 on Tuesday. At the time of writing, Bitcoin is trading at $18,806, down more than 64% over the past year.
According to data from Nayib Bukele’s portfolio tracker, El Salvador is now down to all 10 Bitcoin purchases the government has made since adopting BTC as legal tender. The Salvadoran government has purchased a total of 2,381 BTC so far, which at current prices is worth $62 million less than the price El Salvador paid for its current BTC holdings.
El Salvador’s Finance Minister Alejandro Zelaya has previously emphasized that despite the price drop, the country did not experience any losses on the BTC purchases because they did not sell the coins. The Salvadoran government has also repeatedly delayed its Bitcoin bond project, citing adverse market conditions and geopolitical issues.
Amid falling crypto prices and the ongoing bear market, some industry observers began referring to El Salvador’s Bitcoin adoption as a “failed Bitcoin experiment.” Others suggested that may not be the case as the country has apparently had some positive impact on El Salvador’s economy and financial market, including the cost of transactions.
Bram Cohen, the creator of BitTorrent and founder of the Chia Network, took to Twitter on Tuesday to point out that the amount of benefits is often “not very correlated with how much money it makes.” He suggested that some banks may have to cut interest rates due to the emergence of cheaper Bitcoin transactions in El Salvador.
The same could happen in El Salvador. Now that there is a cheap but annoying method of making money transfers using crypto, banks have had to cut prices to the point where their slightly better user experience is worth the price
— Bram Cohen (@bramcohen) 6 September 2022
According to the El Salvador Central Reserve Bank, Salvadorans living abroad sent more than $50 million in remittances from January to May 2022. The adoption of Bitcoin and the Salvadoran government-backed Chivo wallet also contributed to a 400% increase in Lightning Network transactions in 2022.
Related: El Salvador’s ‘My First Bitcoin’: How to Teach a Nation About Crypto
“El Salvador is going to be the proving ground for so much innovation in Bitcoin,” said Ibex Mercado CEO Jose Lemus. He noted that there is no other jurisdiction that combines “the regulations, the political will, the adoption and range of tools, and most crucially of all, the need for Bitcoin.” He added:
“This makes El Salvador the perfect place to safely experiment with new Lightning applications and build a thriving ecosystem of trusted, proven and connected services.”
El Salvador’s Bitcoin law has also been successful in attracting foreign investment and tourism. As previously reported by Cointelegraph, tourism in El Salvador has soared in the first half of 2022, increasing by around 82% as 1.1 million tourists have flocked to the country this year.
