Written by Carl, Techub News
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On February 4, Salvadoran President Nayib Bukele, who made Bitcoin the country’s legal tender during his term, was successfully re-elected with 87% of the votes.
More than two years ago, El Salvador became the focus for becoming the first country to adopt Bitcoin as legal tender, and President Nayib Bukele, who supports Bitcoin, has also become an "international" KOL. Nayib Bukele currently has 7.6 million followers on Tiktok, which exceeds the total population of El Salvador (6.3 million).
More than two years after Bitcoin was recognized as legal tender, El Salvador’s Bitcoin policy has been subject to numerous controversies, including opposition from the International Monetary Fund, a floating loss of nearly $70 million in cryptocurrency speculation, and low usage. However, Nayib Bukele’s successful reelection seems to prove to the outside world that El Salvador’s Bitcoin experiment has not failed as reported by mainstream media.
The whole country is speculating in cryptocurrencies, from floating losses to floating profits
In June 2021, the El Salvadorian parliament passed a bill approving Bitcoin as the country’s legal tender. Three months later, on September 7, the bill officially came into effect, making El Salvador the first country in the world to adopt Bitcoin as legal tender.
On September 7, Nayib Bukele announced that the government purchased the first batch of 200 bitcoins, and in the following two weeks, it purchased a total of about 700 bitcoins. This behavior of El Salvador was ridiculed by the media as "the president takes the lead and the whole country speculates in cryptocurrency."
At that time, the cryptocurrency industry was in the last bull market. In September 2021, the price of Bitcoin was about $50,000, and it reached the highest point of the bull market at $69,000 in November. Subsequently, the price of Bitcoin fell all the way, falling to a low of $15,450 in November 2022.
During the decline, Nayib Bukele announced several times that he would buy on dips, and by mid-2022, El Salvador had spent approximately $100 million on Bitcoin at an average price of nearly $46,000.
Calculated at this price, at the lowest point of Bitcoin price, the value of Bitcoin purchased by El Salvador shrank by about 2/3, resulting in a paper loss of 66 million US dollars.
In response to social doubts, Nayib Bukele said: "Stop looking at the charts and enjoy life. Its value will increase significantly after the bear market. Patience is the key."
The recent market seems to prove that Nayib Bukele is right. Although the bull market has not really arrived, El Salvador’s Bitcoin is not far from profitability. When the United States approved the Bitcoin spot ETF, El Salvador had a profit of $12.6 million on Bitcoin investment.
Although the price of Bitcoin fluctuates greatly, this has not stopped El Salvador from giving up. Salvadoran Vice President Felix Ulloa recently stated that Bitcoin will remain the legal currency of El Salvador during Nayib Bukele's second term.
IMF: There are significant risks
As a Central American country known for its poverty and violence, El Salvador’s advanced practice in Bitcoin is not favored by the outside world.
The International Monetary Fund (IMF) stated in a statement in November 2021 that Bitcoin should not be used as legal tender in El Salvador, and that Bitcoin poses "significant risks" to consumer protection, financial integrity and financial stability. El Salvador must immediately implement stronger regulation and supervision to protect the security of US dollar and Bitcoin funds by isolating reserve assets, etc.
El Salvador rejected the IMF's advice, with its finance minister saying no international organization can force El Salvador to do anything and that Bitcoin is a "sovereign" issue.
In response to El Salvador’s policies, several U.S. senators jointly proposed a Salvador Cryptocurrency Accountability Act, which requires the State Department to report on legislation for El Salvador to adopt Bitcoin as legal tender, as well as plans to mitigate potential risks to the U.S. financial system. El Salvador has used the U.S. dollar as legal tender for nearly 20 years.
In response, Nayib Bukele said the US has zero jurisdiction over sovereign and independent countries and should stay out of their internal affairs.
In early 2022, rating agency Fitch downgraded El Salvador's long-term foreign currency issuer default rating (IDR) from "B-" to "CCC". Fitch said El Salvador faces a financing gap of $1.2 billion in 2022, which will increase to $2.5 billion by 2023, facing amortization of nearly $1.2 billion in foreign debt.
In January 2023, Nayib Bukele said: “Over the past year, almost all traditional international news media have said that El Salvador will default on its debt by January 2023 due to betting on Bitcoin. But now, the $800 million bond has been fully repaid.”
However, after the IMF delegation ended its visit to El Salvador, it responded that there was no risk in El Salvador because the use of Bitcoin was still limited. Due to factors such as Bitcoin's legal currency status, the government's encouragement of the use of crypto assets, and the promotion of tokenized bonds, the use of Bitcoin in El Salvador may increase, but potential risks still exist.
According to a recent survey by Chayanika Deka, 12% of the local population in El Salvador used Bitcoin at least once to pay for goods and services in 2023, compared to 24.4% in 2022.
In September 2023, the IMF's negotiating team said after visiting El Salvador that it was "very productive" and that although it did not support Bitcoin as a legal tender, it was working with El Salvador to resolve "technical issues" and minimize the risks of the country adopting Bitcoin as a legal tender.
Tether, Binance and others enter the market
However, judging from the results of more than two years of practice, Bitcoin has not made El Salvador worse, and El Salvador has made some good progress in the field of cryptocurrency.
In order to promote the implementation of Bitcoin's legal tender status, El Salvador established the National Bitcoin Office at the end of 2022 to manage all projects related to cryptocurrencies. In early 2023, the Salvadoran Congress approved a bill on the issuance of digital assets, establishing a legal framework for all digital assets, allowing the public issuance and transfer of digital assets, and laying a legal foundation for the issuance of its Bitcoin bonds.
In December 2023, the National Bitcoin Office announced that the Bitcoin bond "Volcano Bond" has been approved and is expected to be issued on the RWA securitization platform Bitfinex in the first quarter of 2024. In April last year, Bitfinex obtained the El Salvador digital asset license.
The currency exchange Binance has also entered El Salvador. In August last year, the Central Reserve Bank of El Salvador granted Binance a Bitcoin Service Provider License, and the National Crypto Assets Commission granted Binance a Crypto Asset Service Provider License.
In June 2023, stablecoin giant Tether announced that it had participated in El Salvador’s multi-billion dollar renewable energy plan and planned to invest $1 billion to build a renewable energy power generation park called “Volcano Energy”, which would use solar and wind energy in volcanic areas to build one of the world’s largest Bitcoin mines.
In May 2023, Jack Mallers, CEO of Lightning Network payment app Strike, said that Strike had moved its global headquarters to El Salvador in response to growing anti-cryptocurrency regulation in the United States.
El Salvador also recently approved an immigration law that grants citizenship to foreigners who donate Bitcoin to the Salvadoran government and economic development projects.
Previously, the Salvadoran government and Tether launched a free visa program, where foreigners can obtain a residence visa and citizenship by investing $1 million in cryptocurrency in El Salvador. According to Reuters, some foreign promoters of digital currencies have immigrated to El Salvador and mainly gathered in beach communities.
Image source: Bitcoin Beach
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