Track adoption a year later

El Salvador, the small Central American nation that made history just over a year ago when it made Bitcoin (BTC) legal tender, recently marked its first year of BTC adoption.

The Salvadoran government designated BTC as a tool to attract foreign investment, create new jobs and reduce the dependence on the US dollar in the country’s economy at the time of adoption. Many BTC supporters and the libertarian community rallied behind the small nation despite growing pressure from global organizations such as the World Bank and the International Monetary Fund (IMF) to remove BTC as legal tender.

Much has changed in the past year since El Salvador became the first “Bitcoin nation.” Enthusiasm and public interest rose immediately after the recognition of BTC, with the price rising to new heights.

Salvadoran President Nayib Bukele joined the growing league of Bitcoin supporters to buy more market dips and even reaped the benefits of their BTC purchases in the early days when the country was building schools and hospitals with profits.

However, as market conditions turned bearish, the frequency of BTC purchases decreased, and the president, who was often seen interacting with the crypto community on Twitter and sharing future Bitcoin attempts, significantly cut back his interactions on social media.

El Salvador has bought 2,301 BTC since last September for around $103.9 million. That Bitcoin is currently worth approximately $45 million. The last purchase was made in mid-2022 when the nation bought 80 BTC at $19,000 apiece.

As the price of BTC declined, critics who have long raised concerns about a crypto bubble felt validated, with several comments along the lines of “I told you so.” However, market experts believe that El Salvador’s BTC experiment is far from a failure.

El Salvador’s Bitcoin Volcanic bond, a project intended to raise $1 billion from investors to build a Bitcoin city, has already been delayed on several occasions now, and skepticism is growing not only around the project, but on BTC adoption itself.

Samson Mow, a Bitcoin entrepreneur who played a key role in designing the Bitcoin Volcanic bond – also called the Volcanic token – told Cointelegraph that contrary to common outside perceptions, El Salvador is building through the bear market. He noted that the Volcanic bond was delayed due to several reasons and is currently awaiting the passage of a digital securities law. He explained:

“We are still waiting for the new digital securities laws to go to Congress, and once they are passed, El Salvador can start raising capital for the Bitcoin bonds. I hope that it happens before the end of this year. Like Bitcoin companies, El Salvador is focused on building through the bear market. I cannot see President Bukele not stacking more at these prices.”

The BTC price registered a new all-time high of $68,789 just one month after El Salvador’s adoption on November 10. Since then, however, the price has fallen by over 70% and is currently trading around $19,000. Many critics believe that the future of the Volcanic Bond and its original token is highly dependent on the crypto market, and therefore can only gain traction during bull markets.

Paolo Ardoino, CTO of Bitfinex, told Cointelegraph that the volcanic tokens would generate interest from investors regardless of market conditions, he explained:

“The Volcanic Token will be the first of its kind. While investor appetite for new offerings is usually greater during a bull market, we are confident that the unique offering this token represents will generate significant interest regardless of market conditions. The Volcanic Token has broad support in the Bitcoin community, and there is obviously a huge appetite for the offering, regardless of whether we are in a bear or bull market.”

Bitfinex is the main infrastructure partner of the El Salvador government responsible for processing transactions from the sale of volcanic tokens.

Bitcoin adoption increased remittances and tourism

While critics have called El Salvador’s Bitcoin experiment a failure since its inception, advocates see it as a revolution of sorts and believe that El Salvador’s adoption could create a domino effect for other nations with similar economic challenges, such as a high number of unbanked citizens and significant remittances . volumes.

Bukele has previously mentioned that the main focus for recognizing BTC was to provide banking services to more than 80% of unbanked salvodrans. Within six months of the law being passed, the country’s national Bitcoin wallet managed to onboard four million users, ensuring that 70% of the unbanked population could access payment and money transfer services without having to go to a bank.

Recent: Metaverse graphics aim for community and accessibility – not realism

Aarti Dhapte, a senior research analyst at Market Research Future, told Cointelegraph that El Salvador’s BTC adoption has proven to be a success on multiple fronts, be it tapping the unbanked or increasing tourism:

“We should accept that the digital currency has helped the Central American nation of El Salvador rebuild its tourism industry, despite the fact that the country is still struggling to endure the long crypto winter. According to information from the Ministry of Tourism, El Salvador’s spending on travel has increased by 81% in the post-pandemic period. In 2021, the nation welcomed 1.2 million visitors and 1.1 million during the first half of 2022.”

Statista data shows that more than 9% of El Salvador’s GDP is made up of the tourism industry, so a near doubling of tourism is a significant boon for the country.

Aside from tourism and providing financial services to the unbanked, BTC adoption has also proven beneficial in terms of cross-border money transfers, significantly reducing transaction costs.

The El Salvador Central Reserve Bank estimates that from January to May 2022, transfers from citizens living abroad totaled more than $50 million. The adoption of Bitcoin and the Chivo wallet, an initiative supported by the government of El Salvador, helped increase Lightning Network transactions by 400% by 2022.

The Disadvantages of Bitcoin Adoption

The biggest downside to El Salvador’s Bitcoin adoption has been macroeconomic factors that have led to a decline in the BTC price along with the amount of pushback it has received from around the world. The setback would not mean anything in a bull market, but as a small nation-state with economic challenges, the country cannot afford to be on bad terms with international monetary organizations.

Right now, the vast majority of El Salvador’s Bitcoin was purchased at a higher value than it has today. Bitcoin has tracked closely with traditional assets, such as the stock market – especially technology stocks. They have also taken a beating this year as the world tries to cope with the aftermath of pandemic-related government handouts.

Beyond the price of Bitcoin, the biggest issue for El Salvador is how the international financial world views the move.

The country’s move towards Bitcoin has limited the country’s access to traditional financial markets, which has caused Bukele some real problems in financing the repayment of the bond obligations. Moody’s, earlier this year, credited disagreements over Bitcoin as a reason why El Salvador was having trouble coming to terms with the IMF.

Recent: Ethereum Post-Merge Hard Forks Are Here: Now What?

Richard Gardner, CEO of institutional infrastructure services provider Modulus, told Cointelegraph that maybe in five years Bukele’s decision won’t look so bad, but for now it’s controversial:

“Bukele’s move to Bitcoin does not look wise. Even with high inflation for the USD, Bitcoin has ultimately failed as an inflation hedge, given its decline. However, we are looking at a one-year snapshot during a recession. For a country like El Salvador, access to financing through organizations like the IMF is crucial. That makes Bukele’s Bitcoin gambit hard to defend.”

El Salvador’s future depends heavily on the success of the delayed volcanic bonds, which could generate billions in revenue and set a precedent for others to follow. Until the launch of the bond, the outside world will continue to measure its success based on the BTC purchases.