Bitcoin, which was very popular in 2021, has been plummeting since June 2022. Many Internet companies and bigwigs in the circle have been selling off their bitcoins, and their deposits have also been rapidly decreasing.
So far, Bitcoin has fallen by more than 70%. In addition to some people losing all their money, even a country has lost all its money. This country is El Salvador in Latin America, which is the first country in the world to use Bitcoin as legal currency.
A small and chaotic Latin American country
El Salvador is located in Latin America, south of Mexico, adjacent to Guatemala and Honduras. The country has a land area of more than 20,000 square kilometers and a population of about 6.7 million. Its area is about the same as Kunming, Yunnan, and its population is less than one-third of Beijing.
El Salvador is one of the poorest countries in Latin America, with about one-fifth of the country's population living on less than $5.50 a day. The country is also known as the "murder capital of the world" and is one of the most unsafe countries in the world.
According to Baidu search data, among El Salvador's population of more than 6 million, the number of members of the two largest gangs exceeds 70,000, and the number of people associated with the gangs is as high as one million.
El Salvador's location
In addition to the gangs, some terrorist organizations have also established their bases here. Salvadorans pay more than $756 million in protection fees to the gangs every year, which accounts for about 3% of the country's GDP.
As the saying goes, heroes emerge in troubled times, and this is even more evident in countries like El Salvador. In 2019, Nayib Bukele, born in the 1980s, became the president of El Salvador. As soon as he took office, Bukele announced that combating crime would be his top policy. Not only did he grant the military and police a lot of rights, he also issued regulations to protect their lives.
As one of the few national leaders born in the 1980s, Bukele reduced the national crime rate from 9.2 crimes per day to 3.8 crimes per day in just two years. He also received support from about half of the country's population and is quite prestigious in Latin America.
The whole country is betting on Bitcoin
What shocked the world about Booker was not his policy on governing the country, but his decision to gamble on Bitcoin with the whole country's strength.
In June 2021, at the Bitcoin Conference, Bukele announced that El Salvador would circulate Bitcoin as legal tender. The global technology giants attending the conference thought he was drunk and joking, and did not take his words to heart.
Unexpectedly, a few days after the conference, the El Salvador Congress passed the Bitcoin Law with 62 votes in favor out of 84 members, officially listing Bitcoin as the country's legal tender. This bill officially came into effect on September 7, 2021. This is the first country in the world to list digital currency as legal tender, which once attracted the attention of the international community.
After the bill came into effect, El Salvador immediately established a $150 million fund specifically for purchasing Bitcoin.
According to relevant data, from September 2021 to May 2022, the Salvadoran government purchased 10 bitcoins, holding a total of 2,301 bitcoins, with a cumulative purchase cost of more than US$101 million.
El Salvador government records bitcoin purchases
El Salvador's move is to use the national treasury funds for investment. In addition to investment, El Salvador has even begun to set up supporting infrastructure across the country, installing more than 200 ATMs that can trade Bitcoin across the country, which can convert Bitcoin in personal digital currency into US dollars and withdraw it directly without paying any handling fees.
In terms of commodity circulation and transactions, El Salvador provides preferential policies, stipulating that commodity transactions can be displayed in Bitcoin, taxes can also be traded in Bitcoin, and capital gains tax is exempted.
ATM machines that can trade Bitcoin
The Salvadoran government also launched the official digital wallet Chivo in September 2021. As long as people download and register, they can immediately receive US$30, which is comparable to the benefits of Pinduoduo.
To promote Bitcoin, the Salvadoran government has mobilized the entire country.
Bitcoin promotion backfires
The Salvadoran government has been desperately promoting Bitcoin, but it has not been recognized by the people. According to Salvadoran media reports, in a poll, 93% of people opposed using Bitcoin to pay wages, and 83% opposed using Bitcoin for remittances. Even on September 15, 2021, El Salvador's Independence Day, thousands of demonstrators took to the streets of the capital San Salvador to protest President Bukele's authoritarian promotion of Bitcoin as the country's legal currency.
In fact, it is not without reason that the people of El Salvador oppose Bitcoin as legal tender. After all, Bitcoin itself is very controversial. In many Asian countries, including China, Vietnam, Indonesia and many other developing countries, Bitcoin transactions are banned.
According to media reports, Salvadoran President Bukele did this for four reasons:
First, save money
Because more than 22% of El Salvador's GDP comes from remittances, data from the World Bank shows that in 2020, Salvadoran expatriates sent a total of more than US$5.9 billion to the country, most of which came from the United States.
Booker's plan is that once Bitcoin is used as remittance by overseas Chinese, it will help them save a lot of exchange rates and handling fees, and to a certain extent protect their stable contribution to the domestic economy.
Second, attract foreign investment
Bitcoin, as a virtual currency, has become a particularly popular emerging thing in recent years. In the context of most countries banning or excluding Bitcoin, El Salvador's announcement of the legalization of Bitcoin can focus global attention and attract the attention of economically developed countries.
In addition, once Bitcoin is legalized in El Salvador, it will make El Salvador a safe haven for Bitcoin worldwide, attracting more Bitcoin-related transactions and financial activities. This will not only drive financial development, but also enhance El Salvador’s international reputation, making it a veritable “Bitcoin city.”
The third is to make money
The ultimate goal of investing in Bitcoin is to make money. As the president of a country, Bukele frequently promotes Bitcoin in his country on social media, simply to make money.
Booker's Twitter content
Fourth, self-marketing
According to Baidu Encyclopedia, Bukele is a businessman, so he is well aware of the importance of marketing. Even before he became mayor, Bukele promoted local agricultural products through social media.
The economy has suffered a severe setback
Judging from the recent trend of Bitcoin, El Salvador has lost $55 million in investment in Bitcoin, with a loss rate of up to 50%.
Bitcoin Trends
According to calculations by relevant experts, combined with expenses for software development and supporting facilities, El Salvador's losses on Bitcoin have exceeded US$200 million to date.
With the loss, Booker had to come out to appease people. He said on social media that Bitcoin investment is safe and its value will rise sharply after the bear market. He also advised people not to look at the price chart anymore, but to enjoy life.
The explanation given by Salvadoran Finance Minister Alejandro Zelaya was even more radical. He bluntly stated that El Salvador has no financial risk because "El Salvador has not sold any Bitcoin, and if it has not sold any, there is no loss."
In fact, whether it is profitable or not, El Salvador should not invest in Bitcoin, let alone use it as legal tender.
On the one hand, the price of Bitcoin is prone to violent fluctuations, and using it as legal tender would undermine the integrity and stability of the country's financial markets. On the other hand, El Salvador's investment of national treasury in Bitcoin is more like a gamble, which is not what a modern country should do.
For a weak, poor, and turbulent country like El Salvador, it is indeed difficult to develop the economy. For this reason, the Salvadoran government hopes to use Bitcoin to "take an unconventional approach." However, there is no shortcut to a country's economic development and social progress except hard work.
