A year ago, El Salvador began accepting bitcoin as legal tender following a controversial and widely criticized decision by President Nayib Bukele.
Everything seemed rosy for the first few months as citizens enthusiastically embraced the new opportunity, but Bitcoin’s value has since plummeted and some experts say the move was a failure.
Maria Aguirre, 52, a shopkeeper in the seaside resort of El Zonte, which was a major center for Bitcoin use, says things went well last year when Bitcoin’s value rose from $52,660 when it opened on September 7, 2021 briefly soared above $68,000 a pair months later.
“But over the last five months it’s only gone down,” said Aguirre, who continues to accept bitcoin transactions.
Bitcoin has dipped below $20,000 for most of this September.
In El Zonte, around 60 kilometers southwest of the capital San Salvador, bitcoin was already being used before Bukele’s move, which was intended to encourage a population where, according to the World Bank, in 2021 only 35 percent of people held an account with a financial institution.
El Salvador became the first country to accept bitcoin as legal tender alongside the US dollar, which has been the official currency for two decades.
The government even created the Chivo e-wallet, giving each user the equivalent of $30.
As of January, the application had been downloaded four million times, according to Bukele — an impressive amount in a country of 6.6 million, despite a diaspora of three million residing mostly in the United States.
Bukele’s idea was to ensure remittances, which account for 28 percent of El Salvador’s GDP, are sent from Chivo, meaning less money is lost through commissions to exchange agencies.
However, former central bank governor Carlos Acevedo says the body’s records show that “less than two percent of remittances come through digital wallets, meaning it wasn’t a benefit either.”
University student Carmen Majia, 22, said she used Bitcoin in the beginning, “but given the way things are going, I don’t trust her now and have uninstalled the application.”
– Volatility –
By the time Bukele’s plan was launched, Aguirre had been using Bitcoin for eight months in the Pacific coast resort popular with surfers.
After Bitcoin’s value skyrocketed between September and November 2021, Bukele announced a plan to build Bitcoin City – a cryptocurrency and blockchain technology tax haven in the Gulf of Fonseca, powered by geothermal energy from Conchagua Volcano target.
To build it, Bukele wanted to issue $1 billion worth of bitcoin bonds, but those plans were delayed by the volatile cryptocurrency market, which saw some less resilient currencies plummet and bitcoin took a big hit.
According to rating agency Moody’s, Bukele’s plan cost El Salvador $375 million.
Bukele took advantage of the drop in value and bought 80 bitcoins at $19,000 each in July, bringing El Salvador’s total holdings to 2,381 units of the cryptocurrency, all bought over the last year.
In June, he told his compatriots to “stop looking at the chart” and insisted that bitcoin is a safe investment that will bounce back.
“Patience is the key,” he said.
– little enthusiasm –
But Acevedo insists that using Bitcoin “really hasn’t worked” and that “it’s really been a failed bet so far.”
But not a total failure “because it could recover and come out of this crypto winter.”
Acevedo says Bitcoin has not met Bukele’s stated goal of “financial inclusion” and its decline in value has “psychologically impacted people who are not enthusiastic about it.”
Bitcoin adoption has also complicated El Salvador’s attempts to secure a $1.3 billion loan from the International Monetary Fund, which had been pushing against the move.
In June, Bukele announced a plan to buy back bonds maturing in 2023 and 2025, amid warnings that the country could default on its public debt, which has exceeded 80 percent of GDP.
He insists the country has the money to do it.
That reduced the country’s risk from 35 percent to 25 percent, but Acevedo says El Salvador will not be able to return to debt markets until that figure drops to “at least five percent.”
In El Zonte, Cheetara Hasbún, a hotel worker, still thinks Bitcoin is a “good payment method” and “just takes more time than the dollar was given.”