El Salvador’s investment in Bitcoin remains a topic of financial scrutiny. As of November 2022, under President Nayib Bukele’s directive, the nation embarked on a dollar cost averaging plan, committing to buy one Bitcoin daily. This strategy followed their acquisition of 2,381 Bitcoins at an average price of around $44,300 each. However, the fluctuating Bitcoin prices, dropping to around $19,000 at that time, led to a significant loss, estimated at $60 million.
By November 14, 2023, assuming consistent daily purchases, El Salvador’s Bitcoin holdings likely reached 2,744, but the reduced average purchase price of about $41,800 and a current Bitcoin price of $36,000 meant the country faced an approximate loss of $16 million on its Bitcoin investments.
The International Monetary Fund (IMF) has expressed concerns over the potential risks this strategy poses to El Salvador’s economic growth and debt repayment abilities. Despite these warnings and the paper losses in Bitcoin holdings, the country’s financial health shows some positive signs. El Salvador’s bonds reported a 70% year-to-date return in mid-August, and its debt rating improved from CCC+ to B- at S&P Global earlier in the month. President Bukele, who recently announced his intention to run for re-election in 2024, enjoys substantial popular support.
The adoption of Bitcoin in El Salvador was also intended to ease remittance transactions and reduce reliance on the U.S. dollar. However, despite the government’s efforts, including the introduction of a digital wallet called Chivo and incentivizing its use, Bitcoin’s adoption for remittances has been minimal.Only a small fraction 1.3% of the $7 billion in remittances from abroad in 2022 was transacted using cryptocurrency wallets, a figure that pales in comparison to Mexico, where 4% of remittances are made through cryptocurrencies.
The impact of Bitcoin’s adoption on the Salvadoran economy has been mixed. While some businesses, like local coffee shops, have reported a positive impact from accepting Bitcoin, broader economic benefits remain unclear. The Central American nation’s bond market has shown resilience, with El Salvador’s bonds posting significant year-to-date returns and receiving an upgrade from S&P Global.
The initiative has certainly placed El Salvador in the global spotlight, marking it as a significant figure in the crypto industry. However, the success of this venture in terms of its broader economic and social impact within El Salvador remains a complex and evolving narrative. With concerns about the potential for hacking, as seen with the Chivo wallet incidents, and the need for more widespread education on cryptocurrency use, El Salvador’s Bitcoin experiment continues to be a topic of global interest and debate.
