El Salvador made history in September 2021 when it started accepting Bitcoin as a legal tender. The government, led by Nayib Bukele, made a big bet on the queen cryptocurrency: it launched its own electronic wallet, Chivo Wallet; And Bitcoin started accumulating as a store of value and to offer bonds to its citizens. The equivalent of $30 at the time of delivery.

After this measure various motivations: stop relying on the dollar, fix the high unbanked population, become a hub of technological innovation and make it easier for immigrants to send money to their families from abroad, the so-called “remittance” represents 20% and 25% of the country’s GDP.

Nearly two years after this move, this bet has been in turmoil, experiencing a significant drop in Bitcoin value, adding more uncertainty to the country’s future and facing constant doubts.

Government response? Raise your bet.

one bitcoin a day

The announcement was made at the end of summer 2021, just before nearly the entire tech industry began a tailspin that splashed cryptocurrencies at both the equity and venture capital levels. On the day of the announcement, one bitcoin was worth about $47,000, and soon the value reached almost $65,000. It’s now worth $30,000.

El Salvador wasn’t just buying Bitcoin at the time of the announcement, with 2,381 bitcoins bought at an average of $43,300 each. In June 2022, he seized 80 more bitcoins, each priced at an average of $19,000. And in October 2022, Bukele announced that he would start receiving one bitcoin a day at any time, regardless of its value.

Despite these published figures, it is difficult to accurately track the amount of bitcoin the country holds due to the government’s lack of transparency regarding the use of public funds. There is no official record listing these amounts, nor is there an independent body that audits or verifies them.

This little shared information it has since come through statements made to the media, such as when finance minister Alejandro Zelaya admitted in June 2022 that they had sold part of the reserves to fund Chivo Pets, a veterinary hospital.

At that time, almost a year after the introduction of Bitcoin in the country, a little over two million Salvadorans had installed and configured their Chivo Wallet, but only 20% of them continued to use it beyond the $30 provided by it. government, it’s almost equivalent to a four-day minimum wage.

Small citizen support

This b0no was the big bet of a bid that reached four million users within months. A simple multiplication calculates the cost of this measure: 120 million dollars. Initial budget 30 millionfour times less.

According to the University Public Opinion Institute, at the end of 2022 only 24% of the population had used Bitcoin to buy or pay, 77% considered the government should not continue to spend public money on Bitcoin and 66% considered it a failure. . .confirm. Only 3% of the population think their economic situation has improved since then, and for the vast majority the situation has remained the same.

The second question is about plans such as the aforementioned $30 million in bonus bitcoin (which was a multiple of four), $23 million for the ‘Crypto Friendly’ program, or $150 million for the government trust fund to help Bitcoin adoption. by local newspaper Lighthouse.

At the time, it was said that this movement would be the fuse to ignite similar initiatives in other countries. Almost two years later, only the Central African Republic followed the idea to adopt Bitcoin. as official currency… to ban it a few months later.

A few weeks ago, the Volcano Energy project, a public-private partnership with an initial budget of $250 million (capital injection to reach 1,000 million), took shape to build this infrastructure.

The mining farm, located in the municipality of Metapan, will use wind and solar power to reach over 240 MW. The Salvadoran government will have a revenue share of 23% and a further 27% for its private investors. Who is Tether among; the remaining 50% will be reinvested in infrastructure. The overall ownership structure has not been clarified.

During this time, the Salvadoran government found reasons to brag about its commitment. For example, when Secretary Zelaya bragged about paying off one of the outstanding bonds on time, along with interest, on her $800 million debt.

That’s $800 million cannot be attributed solely to betting in Bitcoin. Even with the very generous rounding attributed to 3,000 bitcoins to the country, each coin’s appreciation should be more than $260,000, which is not even close to the unit value. Although they attribute their commitment to the ability to pay this debt in their statements to the media, it is difficult to see the relationship between them.

While the government had overlooked this correlation as a way of countering earlier warnings about the danger of this bet, the IMF reiterated its view when it recommended to Salvadoran officials in February 2023 that “the government should reconsider their plans to widen their risk exposure”. Explaining that the risks had not materialized until then due to the “limited use” of Bitcoin to date, but that its use may increase due to the cryptocurrency’s status as a legal currency, and in this case the need for “Bitcoin” will be discussed.

However, the IMF He also underlined that the Salvadoran economy has already managed to reach pre-pandemic levels.A figure above its historical average with real GDP growth of 2.4%; however, he warned that more transparency remains necessary about the government’s Bitcoin transactions and Chivo Wallet’s finances.

A month later, the IMF made an assessment of El Salvador’s economic, financial and exchange rate policies, but announced in April that authorities did not allow the report to be published.

Hostos Rizik Lugo, executive director of the Central American Bank for Economic Integration Dominican Republic, congratulated Zelaya on the milestone he was able to pay off his debt. The minister’s response was:hi bro“.

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