Summer, sun, satoshis: With this impression, a team from BTC-ECHO traveled through El Salvador in November, which was the first country in the world to make Bitcoin legal tender two months earlier. A year after the Bitcoin Act was introduced, what remains of the hype?
What is Bitcoin Law?
The so-called Bitcoin Law is actually a whole package of laws that defines the legal status of digital gold in El Salvador. Important clauses include Article 3 (“Prices may be expressed in Bitcoin”), Article 4 (“Taxes may be paid in Bitcoin”) and Article 5, which exempts Bitcoin profits from capital gains tax.
In other words, El Salvador treats Bitcoin exactly like its fiat counterpart. Because in addition to the cryptocurrency, the US dollar is the national currency in the Central American country. And – you have to be honest – the latter currency is still the undisputed number 1 means of payment. There was no lack of acceptance points for the digital currency. Apart from the Bitcoin-affine tour group, hardly anyone had really used it according to our observations.
The numbers also speak a rather sober language. The only representative study published so far on Bitcoin usage in El Salvador puts the percentage of payment transactions made in Bitcoin at just 4.9 percent. 95 percent still prefer the US dollar for their daily purchases. Bitcoin’s advantages in remittances, i.e. cross-border transfers, are also less accepted by the Salvadorans than hoped. Only 8 percent of those surveyed stated that they had already received remittances in BTC via Chivo.
It is doubtful whether the statistics have improved with the slump in the Bitcoin price.
However, it would be wrong to label the Central American Bitcoin experiment as a failure just one year after its launch. Getting a society used to a completely new form of money overnight is a hopeless undertaking. In any case, the Bukele government makes no secret of the fact that it is thinking long-term. This is shown above all by looking at El Salvador’s strategic Bitcoin investments. Because with currently 2,381 BTC, El Salvador is the second richest country in the world – at least if you take the BTC stocks as a basis for valuation. Communications professional and president of the state of Bukele meanwhile repeatedly takes price falls as an opportunity to “buy the dip”, as the internet-savvy 41-year-old never tires of emphasizing.
The timing, however, was less well chosen. The investment may pay off in the long run. So far, however, losses in the millions have been recorded for the already poor country.
The latter, as you can already guess, always gives cause for criticism. For example, the International Monetary Fund (IMF) urged economic prudence; otherwise one sees oneself forced to withdraw from credit lines.
Bukele’s sometimes flippant, sometimes authoritarian style of government has also caused trouble. In May it became known that the “coolest dictator in the world”, as Bukele calls himself flamboyantly on Twitter, trades BTC from his smartphone – and that too naked. Accountability for the whereabouts of the coins? none.
Bitcoin scene grants grace period
However, the crypto scene is more forgiving when it comes to the initial difficulties. For example, Paolo Ardoino, CTO at Tether, argues that an orange future should not be expected a year after its introduction.
Rather, it is crucial that El Salvador has a so-called first-mover advantage with the Bitcoin Act. After all, 2,381 BTC may currently be in the red. But if the bullish price expectations play out, Nayib Bukele has blessed El Salvador with a financial cushion that the country can draw on for a long time to come.
But there are already demonstrable achievements as a result of the law. Tourism has increased by a whopping 30 percent compared to the previous year – and with it the gross domestic product. At least around 10.3 percent the Central American country was able to increase its GDP within a year. At least that’s what Nayib Bukele claims.
Alex von Frankenberg is also optimistic about the Bitcoin future. In an interview with BTC-ECHO, the CEO of High-Tech Gründerfonds says:
If we see a positive impact, such as stronger economic growth or a reduction in crime, El Salvador could be a role model for other countries. And this question is open. But if the impact is measurably positive, we will see a long list of countries adopting Bitcoin, with corresponding price effects.
Alex von Frankenberg
Despite all the prophecies of doom, the bottom line is that the Bitcoin Act remains an ambitious project that has the potential to fundamentally change the crisis-stricken country. That should excite every bitcoiner.
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