El Salvador’s groundbreaking move to adopt Bitcoin as its legal tender in September 2021 sparked a wave of debates and discussions globally.
The initiative garnered considerable skepticism from onlookers who questioned the stability and viability of cryptocurrency as a national currency. Many expressed concerns about potential risks, volatility, and regulatory challenges associated with integrating Bitcoin into the country’s economic system.
Additionally, there were doubts about whether the move would bring tangible benefits to the Salvadoran people or exacerbate existing economic inequalities.
Despite encountering these and many other challenges, El Salvador persisted in its mission to integrate Bitcoin into its financial framework. Two and half years later, the nation’s $117.5 million Bitcoin investment turned profitable in December last year, much to the excitement of Nayib Bukele (the country’s president), who took to Twitter to respond to critics.
“With the current Bitcoin market price, if we were to sell out Bitcoin, we could not only recover 100% of our investment but also make a profit of USD 3,620,277.” Bukele posted in a tweet moments after the uptick.
How Profitable is El Salvador’s Initial Investment
Given that Bitcoin is currently priced above the $70,000 mark, El Salvaldor’s investment has seen an additional 50% gain from December’s prices. With the upcoming Bitcoin halving, more upside is to be expected.
According to reports, El Salvador’s Bitcoin holdings currently amount to $186,376,690, reflecting a 55.82% increase based on an average buying price of $42,555 per Bitcoin.
For a country whose inflation in 2022 was around 7.20%, the uptick in the value of its investments could significantly boost the country’s financial reserves while also positioning it as a trailblazer in the global adoption of Bitcoin.
And if Bitcoin continues to maintain its upward streak, El Salvador’s decision to embrace it as legal tender could lead to substantial economic benefits for its citizens locally and internationally.
In line with its ambition for the financial liberation of its people, El Salvador has further capitalized on the Bitcoin hype with a strategy that aims to attract at least 1,000 high-net-worth individuals to the country.
The program titled Freedom Visa, was launched in December last year and is set to approve Salvadoran citizenship to 1000 applicants who allocate $1 million to the government of El Salvador.
The program’s official website states, “Experience Freedom, Security, and a Bitcoin lifestyle by adopting El Salvador as your home. El Salvador has been reborn as the land of economic liberty. But this is just the beginning. Come help us build the future you want to see.”
El Salvador vs the Naysayers
Early on, the move by President Nayib Bukele to make Bitcoin legal tender in El Salvador was met with a ton of skepticism internationally and locally.
Critics raised concerns about the potential risks and uncertainties associated with adopting a volatile and relatively unregulated cryptocurrency as a national currency.
Many doubted whether Bitcoin could effectively function as a medium of exchange and store of value in a country where financial inclusion and stability are pressing issues.
The IMF even went as far as threatening to withdraw the country’s access to loans, saying that Bitcoin’s status as legal tender in the country could become a major obstacle to the nations efforts to get a loan from the institution.
Locally, the government launched an e-wallet (Chivo) that allows users to send and receive Bitcoin and dollars without fees, but it struggled to gain popularity despite the El Salvadoran government depositing $30 in every citizen’s Chivo.
Despite the pushback, President Bukele remained steadfast in his vision, emphasizing the potential benefits of embracing Bitcoin for financial inclusion, innovation, and economic empowerment.
Now, with the increase in the value of El Salvador’s Bitcoin holdings, there’s a renewed discussion about the viability and profitability of the country’s bold decision to integrate cryptocurrency into its economic framework.
As some experts put it, the country’s leadership in the Bitcoin space can be described as nothing short of a “meaningful test for Bitcoin.” Now that their initial investment is profitable, Bitcoin naysayers and critics are forced to reassess their doubts and confront the potential merits of El Salvador’s approach.
Bitcoin Changing the Status Quo
Perhaps what the IMF and other stakeholders in the world of tradition finance fear is that the success of El Salvador’s Bitcoin experiment could set a precedent for other nations considering similar moves.
Countries that are dollar-dependent, such as those in Latin America, Africa, and other parts of the developing world, are considering the use of Bitcoin as an alternative to the US dollar.
“I believe that bitcoin adoption is conceivable, especially in the relatively small developing countries with inadequate monetary systems where the recognition of digital currencies is relatively high, especially BTC,” said Maggie Wu (the CEO of Krypital Group) in an interview with Forbes.
El Salvador’s case proves that if the global perception of Bitcoin continues to change, traditional fiat currencies, such as the US dollar, could face increased competition or even obsolescence in some contexts.
This potential shift in monetary dynamics could challenge existing power structures and reshape the landscape of international finance, prompting a re-evaluation of the role of central banks and established financial institutions in an increasingly digitized and decentralized financial world.
While it is recommended to conduct careful analysis and implement adequate infrastructure before undertaking the risk of adopting Bitcoin as legal tender, Bitcoin’s store of value narrative makes the risk of its price volatility somewhat more manageable.
Unlike traditional fiat currencies, Bitcoin is designed to be deflationary over time, with a finite supply that cannot be manipulated by central authorities. This characteristic has attracted investors, traders, presidents, and entire communities to seek BTC as a safe haven amid global economic uncertainty.
The Future of Bitcoin Adoption Worldwide
El Salvador has set up the stage for global Bitcoin adoption, especially in regions where fiat currencies are subject to inflation. In places such as Venezuela, where hyperinflation eroded the value of the bolivar, most citizens turned to Bitcoin as a hedge against economic turmoil.
Similarly, in countries like Nigeria and Zimbabwe, where currency devaluation and government mismanagement have undermined trust in traditional financial systems, Bitcoin has also emerged as a viable alternative for preserving wealth and facilitating cross-border transactions.
If this trend continues, demand for BTC could soon represent a viable alternative to fiat currencies in the coming decade.
