Few events in Bitcoin's history have been as bold and polarizing as El Salvador's decision to adopt cryptocurrency as legal tender. Led by President Nayib Bukele, this small Central American country became the first national experiment with Bitcoin. But why did they do it, how much did they buy, and what has happened since then? 🤯
1. The Context: Why Did El Salvador Bet on Bitcoin? 🤔
El Salvador had dollarized its economy in 2001, which removed control over its monetary policy and affected the purchasing power of its population. Additionally, a large portion of Salvadorans (approximately 70%) did not have access to banking services. Remittances from Salvadorans abroad are vital to the economy (representing more than a fifth of GDP in 2020), but the sending fees were very high.
Bukele's vision was clear:
A) Financial Inclusion: Integrate the unbanked population into the formal economy.
B) Reduction of Remittance Costs: It was estimated that the use of Bitcoin could reduce annual fees by about $400 million.
C) Attraction of Foreign Investment: Encourage investment and crypto tourism.
2. The Bitcoin Law and the First Purchase 🗓️
The Bitcoin Law was approved by the Legislative Assembly on June 9, 2021, and Bitcoin officially became legal tender on September 7, 2021. The government launched a digital wallet called "Chivo" and offered a $30 bonus in Bitcoin to citizens who downloaded it.
The first official purchase by the Salvadoran government was 400 Bitcoins, valued at approximately $21 million at the time of acquisition.
3. The Initial Perception: A "Crazy" President? 🤪
Bukele's decision was met with massive skepticism and fierce criticism from financial experts, international organizations, and the media.
A) Extreme Volatility: Many pointed out Bitcoin's high volatility as an unacceptable risk to a nation's economic stability. Moody's, for example, downgraded El Salvador's rating partly due to the Bitcoin law.
B) Warnings from the IMF and the World Bank: The International Monetary Fund (IMF) and the World Bank repeatedly urged El Salvador to reverse its decision, citing risks to financial stability and concerns about money laundering.
C) Public Doubts: Initial surveys showed that a large portion of Salvadorans had little intention of using Bitcoin and many wanted the law to be repealed.
Bukele was labeled "crazy" and his experiment was seen as an irresponsible gamble by many.
4. Gains or Losses? The Evolution of Reserves 📈📉
Initially, El Salvador's bet seemed risky. The value of Bitcoin began to decrease in November 2021 and had fallen by approximately 45% by January 2022. However, the government adopted a "Dollar-Cost Averaging" (DCA) strategy, committing to buy one Bitcoin daily starting in November 2022.
More recently, with the cryptocurrency market surge, the situation has changed dramatically. In December 2024, President Bukele highlighted that unrealized gains for El Salvador in its Bitcoin holdings exceeded $300 million when Bitcoin broke the $100,000 mark. According to Nayib Tracker, El Salvador holds 6,180 BTC with an average purchase price of $44,739.88, representing a gain of 122%.
Although the experiment has faced challenges and local adoption has not been massive, El Salvador's accumulation strategy has proven to be profitable so far, and the country has reported a boost in tourism.
We want to know your opinion! What do you think of El Salvador's Bitcoin experiment? Do you think other countries will follow suit, or is it an isolated case?
In the vast crypto ocean, it’s not the strength of the wave that brings you to safety but the sailor's skill in reading the currents and waiting for the tide. Patience is your best compass. 🌊🧭