Bitcoin in El Salvador – One Year Later
October 03 2022 - 8:40AM
NEWSBTC
It has been one year since Bitcoin became legal tender in El
Salvador. Crypto adoption has not been without issues in El
Salvador, but it’s difficult to weed through the different stories
about Bitcoin because there are so many competing interests
promoting or FUDing Bitcoin. This article will filter through the
nonsense and describe how Bitcoin in El Salvador has panned out one
year after it became legal tender. Why El Salvador Made Bitcoin
Legal Tender El Salvador made Bitcoin legal tender ostensibly for a
few reasons. The government cited the following reasons: A
significant portion of El Salvadorans receive remittances from the
United States. Remittances from the US actually make up 20% of El
Salvador’s GDP. Fees for wiring money to El Salvador are not cheap.
Bitcoin transactions are cheap, so the El Salvador government made
Bitcoin legal tender to reduce the fees citizens must pay for
remittances. Approximately 70% of El Salvadorans do not have bank
accounts. Transacting in Bitcoin can act as a sort of bank account.
El Salvador uses the United States Dollar, which is suffering from
fairly bad inflation at the moment. El Salvador moved to Bitcoin to
hedge itself against inflation of the US Dollar. The three reasons
listed above are all the official reasons that El Salvador gave for
making Bitcoin legal tender. There are likely other reasons for El
Salvador to make Bitcoin legal tender that they will not say
publicly, though. It’s also important to note that USD is still
legal tender in El Salvador. The country still mostly uses USD
despite Bitcoin legal tender. Anyway, the next section will discuss
the reality of Bitcoin use in El Salvador since the country made it
legal tender. Bitcoin in El Salvador – The Reality This section
will cover point by point the official reasons that El Salvador
made Bitcoin legal tender and then describe the reality of the
situation. First of all, remittances in El Salvador. Are
Salvadorans using Bitcoin for remittances? No, Salvadorans are not
really using Bitcoin for remittances. According to information from
worldcoinstats.com only 3.2% of all remittances are done in
Bitcoin, which is pretty bad. Of course, no one expected this
number to jump to 100% overnight, but it’s an underwhelming use
compared to what many in crypto expected. Next, are Salvadorans
using Bitcoin for their daily transactions? Again, not really.
There’s no hard data on this figure, but it’s estimated that
approximately 80% of shops in the country do not accept Bitcoin
despite it being legal tender in the country. With that in mind,
it’s unlikely that Salvadorans are using Bitcoin for most of their
transactions. This came as surprise because the Chivo wallet app
(the official Bitcoin lightning network app of El Salvador)
had over 4 million downloads when it was released. However, this is
because new Chivo wallets received a free $30 deposit. The average
salary in El Salvador is $12 per day, so $30 is a few days of work
for many Salvadorans. Of course many would download an app for a
free $30 when they make so little per day. Finally, has Bitcoin
served as a good hedge against inflation of the United States
dollar? Well, El Salvador bought approximately $100 million worth
of Bitcoin over the past year at an average price of $45,000. The
current price of Bitcoin is about $19,000. USD inflation currently
stands around 8.2%, so El Salvador has lost more money by holding
Bitcoin than it would have if it held USD over the past year. Of
course, Bitcoin is more of a long term thing for El Salvador, so
it’s a little silly to declare this a 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 the great
success that many people expected. There’s not much reason to fear,
though. It has only been one year since El Salvador made Bitcoin
legal tender in the country. The biggest problem with Bitcoin in El
Salvador is that El Salvador picked probably the absolute worst
time to make Bitcoin legal tender. They basically did it right at
the top of the bubble and then proceeded to buy “the dip” anytime
the price dropped – the problem was the price kept dropping. Anyone
that went all in on Bitcoin around that time would be down about
50% right now. It happened to plenty of people, but in the case of
El Salvador it happened to the entire country. If El Salvador would
have invested in Bitcoin a year or two earlier, then the country
would be up 500% on its investment and many would declare it
incredibly succesful. This will likely occur if the price of
Bitcoin rises again, which its expected to do after the Bitcoin
halving. The problem with that the next halving is a few years away
in 2024. Can El Salvador stay with Bitcoin for that long? Or will
the country abandon the cryptocurrency before the price recovers?
The other problem with Bitcoin in El Salvador is that the
government forced people to use it, which goes against a lot of the
principles of cryptocurrency. In fact, is it even cryptocurrency at
that point? We would argue that it’s not really cryptocurrency if
the government forces you to use it. The government specifically
forced people to use the Chivo wallet app, which has a reputation
for having a lot of bugs. And that has left a lot of Salvadorans
with a bad first impression with Bitcoin because they associate all
the bugs with the Chivo app as problems with Bitcoin. This is still
a relatively minor problem, though. The bigger problem was that El
Salvador picked the worst time to invest in cryptocurrency, but
it’s still worth mentioning the other problem with the current
system in El Salvador. Final Thoughts To summarize, Bitcoin in El
Salvador has not been very successful one year into the country
making it legal tender. There is still no need to fear, though.
Bitcoin is a long term project for the country, so if El Salvador
can stick to their Bitcoin experiment, then they will likely see it
become successful.
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