El Salvador’s adoption of Bitcoin has benefited. Why was the government’s decision the right one?
At the beginning of September, the world was taking stock of the milestone. Still, just over a year ago, Bitcoin was recognised as a means of payment in a small Central American country called El Salvador. The event was promoted by the Salvadoran government as a way to attract foreign investment, create new jobs and major projects, and reduce the economy’s dependence on the dollar. Let’s talk about the benefits of supporting BTC given the passage of time.
Unfortunately, even El Salvador's President Nayib Buquele's enthusiasm has waned significantly due to the decline of the crypto market - while he used to constantly report on Twitter about new rounds of BTC purchases for the state reserve, he now more rarely mentions the cryptocurrency.
And that’s not surprising: still, the country’s cryptocurrency trading position is showing serious downside so far. As of this weekend, El Salvador’s Bitcoin investment has more than halved. As a result, the state’s unrealised loss is almost $62 million.
What’s happening with El Salvador’s Bitcoin position
As a reminder, the losses are unrealised because the country's leadership does not sell bitcoins and thus does not record a minus. Which means, in theory, El Salvador gets a chance to move to income if Bitcoin rises above $45,000. The average BTC price in the country's position is at that price level.
Be that as it may, some experts believe that the country’s government experiment with crypto cannot yet be called a failure. And here’s why.
Where Bitcoin is the official currency
Renowned crypto-enthusiast Samson Mou, who played a role in El Salvador’s cryptocurrency development, shared details of what’s happening in an interview with Cointelegraph. He stated that the country’s government is actively working with crypto, contrary to common perceptions. He noted that the issuance of crypto-bonds has been delayed for certain reasons, but the project is currently awaiting the passage of a digital securities law. Here is his quote.
We are still waiting for the new digital securities laws to come to Congress, and once passed, El Salvador will be able to start raising capital. I hope it will happen before the end of 2022.
El Salvador’s President Nayib Buquele
We are talking about bonds backed by Bitcoin. With them, the Salvadoran government hopes to attract investment to build Bitcoin City, a massive project in the form of an entire city that will use the energy of a volcano to mine the cryptocurrency.
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Bitfinex crypto exchange chief technical officer Paolo Ardoino is confident that El Salvador’s cryptocurrency will generate investor interest even during a bearish trend.
While investors’ appetite for new offerings is usually higher during a bullish trend, we are confident that the unique project will generate significant interest regardless of market conditions.
The green line on the Bitcoin chart indicates buying rounds of the cryptocurrency by the Salvadoran government. The dotted line is the average market entry price
As a reminder, Bitfinex is the key infrastructure partner of the government of El Salvador, responsible for processing transactions from bond sales.
Another important item on President Buquelet’s list of promises was to provide financial services to people without access to the banking sector. The government seems to have succeeded in this too: six months after the recognition of BTC, the national cryptocurrency wallet Chivo had more than four million users. In doing so, 70 per cent of people in the aforementioned category have gained access to fast transactions without having to go to a bank.
Market Research Future senior analyst Aarti Dhapte also pointed to the development of tourism in the country. Here is his quote.
We have to admit that cryptocurrency has helped El Salvador rebuild its tourism industry. According to the Ministry of Tourism, tourist spending in El Salvador has increased by 81 percent in the post-pandemic period. The country welcomed 1.2 million visitors in 2021 and 1.1 million in the first half of 2022.
Statista data shows that more than 9 percent of El Salvador’s GDP comes from the tourism industry, so a large influx of visitors is a good bonus to the country’s economy.
Share of tourism in El Salvador’s GDP by year
Of course, the accumulation of BTC in government reserves is still criticised, as the initiative has led to large unrealised losses. However, so far the risk has been worth the result, and with the onset of a bullish trend El Salvador will clearly get more bonuses from Bitcoin legalisation.
In the long term, we believe that the correctness of the El Salvador government's Bitcoin decision will be evident. Of course, the country needs to work on the infrastructure to popularise cryptocurrency payments and at least wait until it emerges from an unrealised loss. However, the overall pioneering role in this regard would hardly be easy, and the country's leadership was clearly prepared for a market crash, since it bought bitcoins at $19,000 in July 2022.
For more interesting news, check out our Millionaire Crypto Chat. There we will discuss other important developments related to the blockchain and decentralisation industry.
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