El Salvador, the small Central American country that made history when it launched Bitcoin (BTC) a few years ago, recently marked its first year of accepting BTC.
The Salvadoran government has touted BTC as a tool to attract foreign investment, create new jobs, and cut the country’s economy’s dependence on the United States dollar during its adoption. Despite pressure from international organizations such as the World Bank and the International Monetary Fund (IMF) to remove BTC as legal tender, many BTC supporters and the liberal community have sided with the tiny country.
A lot has changed in the past year since El Salvador became the first Bitcoin nation. After BTC’s recognition, enthusiasm and public interest surged, sending its price soaring to new heights.
Salvadoran President Naib Bukele has joined a growing league of Bitcoin fans to buy more market bait and even reap the benefits of his BTC purchases as the country builds schools and hospitals with the proceeds.
However, as the market conditions have changed, the frequency of BTC purchases has decreased, and the president, who has often been seen interacting with the crypto community on Twitter and sharing future Bitcoin endeavors, has significantly reduced his social media engagement.
El Salvador has bought 2,301 BTC worth $103.9 million since last September. That Bitcoin is currently worth approximately $45 million. The most recent purchase took place in mid-2022 when the country bought 80 BTC for $19,000.
As the price of BTC rises, critics who have been raising concerns about a crypto bubble have felt justified in making several comments along the lines of “I told you so.” However, market experts believe that El Salvador’s BTC experiment is far from a failure.
El Salvador’s Bitcoin Volcanic Bond, a project to raise $1 billion from investors to build a Bitcoin city, has now been delayed on several occasions and there is growing skepticism not only surrounding the project, but also BTC adoption in general.
Samson Mou, the Bitcoin entrepreneur who played a key role in designing Bitcoin’s Volcanic Link – also called the Volcanic Token – told Cointelegraph that contrary to common outside views, El Salvador is building in a bear market. He pointed out that the connection of Volcano has been delayed due to various reasons and currently the approval of the Digital Securities Act is pending. He explained.
“We are still waiting for the new digital securities laws to go to Congress, and once they are approved, El Salvador can start a capital increase for Bitcoin bonds. I hope it will happen before the end of this year. Like Bitcoin companies, El Salvador is focused on building in a bear market. President Bukele at these prices I can’t see them overlapping much.
The BTC price in El Salvador recorded a new all-time high of 68,789 just one month after its adoption on November 10. But since then, however, the price has tanked more than 70% and is currently trading at around $19,000. Many critics believe that the future of Volcanic Bonds and Generation Token is highly dependent on the crypto market and as a result can only gain traction during bull markets.
Bitfinex Chief Technical Officer Paolo Arduino told Cointelegraph that Volcanic Tokens will generate interest from investors regardless of market conditions.
“Volcano Token will be the first of its kind. While investor interest in new offerings is high during bull markets, we are confident that the unique proposition this token represents will generate strong interest regardless of market conditions. Volcano Token has broad support in the Bitcoin community and can be used in both bear and bull markets.” Although we are in the market, it clearly shows that there is a strong demand for it.
Bitfinex is a key infrastructure partner of the Government of El Salvador responsible for conducting Volcanic Token Sale transactions.
Bitcoin adoption has boosted currency exchange and tourism
While critics have called El Salvador’s bitcoin experiment a failure from the start, supporters see it as a form of revolution and believe El Salvador’s adoption could create a domino effect for others with similar financial problems, such as underbanked citizens and high turnover. Volumes.
Bukele previously mentioned that the primary focus of Discover BTC was to provide more than 80% of banking services to Bank Salvorans. Within six months of the law’s enactment, the country’s national bitcoin wallet has landed four million users, ensuring that 70% of the unbanked population can access payment and remittance services without going to a bank.
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Arti Dapte, senior research analyst at Market Research Future, told Cointelegraph that El Salvador’s BTC adoption has been a success on many fronts, whether it’s banking the unbanked or boosting tourism.
“We must acknowledge that digital currency has helped the Central American country of El Salvador rebuild its tourism industry. According to data from the Ministry of Tourism, El Salvador’s travel spending has increased by 81 percent post-pandemic. In 2021, the country will receive 1.2 million visitors in the first half of 2022 and 1.1 It has received millions of visitors.
According to Statista, more than 9% of El Salvador’s GDP is made up of the tourism industry, so a doubling of tourism is a big plus for the country.
In addition to tourism and providing financial services to the unbanked, BTC adoption has proven to be beneficial in promoting cross-border remittances and significantly reducing transaction costs.
The Central Reserve Bank of El Salvador estimates that expatriate remittances from January to May 2022 reached more than $50 million. El Salvador’s government-backed Bitcoin and Chivo wallet acceptance helped boost Lightning Network transactions by 400% by 2022.
The downsides of Bitcoin adoption
The biggest downside to El Salvador’s Bitcoin adoption is the macroeconomic factors that have caused the price of BTC to drop, along with the amount of pressure it has received from around the world. The pressure will not change the bull market, but the country is a small country with financial problems and cannot have a bad relationship with international financial institutions.
Right now, most of El Salvador’s bitcoins are bought at a price higher than its current favorite. Bitcoin has been tracking as closely as the stock market — especially technology stocks — to traditional assets. They have also taken a major hit this year as the world tries to deal with the fallout from government books linked to the pandemic.
Beyond the value of Bitcoin, the biggest problem for El Salvador is how the international financial world views its activities.
The country’s move to bitcoin has limited the country’s traditional financial markets, causing some difficulties for Bukele to finance its bond obligations. Moody’s, earlier this year, attributed disputes over Bitcoin to El Salvador’s trouble agreeing with the IMF.
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Richard Gardner, CEO of institutional infrastructure services provider Modulus, told Cointelegraph that maybe five years from now Bucke’s decision won’t seem so bad, but now it’s controversial.
“Bukele’s move to Bitcoin seems unwise. Despite the high inflation against the dollar, Bitcoin has finally fallen as inflation. However, we are looking at a snapshot of a year during a recession. For a country like El Salvador, it is important to get financial support through organizations like the IMF. That makes Buckel’s Bitcoin gambit difficult to defend.
El Salvador’s future depends heavily on the success of the delayed volcano bonds, which could generate billions and set an example for others to follow. Until the bond is launched, the outside world will continue to measure its success based on BTC purchases.