Is El Salvador’s Bitcoin Push Working after BTC Visa Bonds?

Critics argue that El Salvador’s Bitcoin experiment was premature, highlighting the country’s struggles in achieving the ‘Bitcoinization’ of its economy.

El Salvador’s foray into the crypto market has been nothing short of controversial, marked by a $117.5 million Bitcoin (BTC) investment that recently pitched on the edge of profitability. President Nayib Bukele’s persistence in the face of international criticism, including opposition from the International Monetary Fund (IMF), raises questions about the true success and impact of El Salvador’s Bitcoin experiment.

El Salvador Bitcoin Investments Yields Profits

El Salvador made history in September 2021 by becoming the first nation to adopt Bitcoin as legal tender. The move was aimed at addressing the country’s deep-rooted economic challenges, but it was met with skepticism and opposition. The IMF, in particular, urged El Salvador to reconsider its decision, especially as global crypto prices faced volatility.

President Bukele, however, remained undeterred, employing a dollar-cost-averaging strategy during the crypto winter of 2022. His commitment to Bitcoin persisted even as the value of El Salvador’s BTC investment portfolio dipped more than 50% at one point.

President Bukele announced that El Salvador is now making a profit from its Bitcoin investments, with the current market price allowing the country to recover 100% of its initial investment and gain an additional $3,620,277.13.

According to a recent report, El Salvador’s investment has shown a marginal profit, with the portfolio briefly entering the green. However, the ongoing volatility in the crypto market prompt questions about the appropriateness of sovereign governments investing in such high-risk assets, especially for economically struggling nations.

Contrary to expectations, BTC has not gained widespread adoption for daily transactions in El Salvador. The cryptocurrency’s use for remittances, a significant aspect of the initial plan, has also fallen short.

Supporters of Bukele argue that El Salvador had to take bold steps to break free from decades of financial instability and over-reliance on the US dollar. The positive return on the BTC investment, coupled with improved bond ratings and increased tourism, is seen by some as evidence of success.

Assessing the Long-Term Impact of El-Salvador’s Crypto Decisions

Critics argue that El Salvador’s Bitcoin experiment was premature, highlighting the country’s struggles in achieving the ‘Bitcoinization’ of its economy. The lack of widespread retail usage and the failure of citizens to adopt Bitcoin for everyday transactions underscore the challenges faced by the country.

Looking ahead, it remains to be seen whether El Salvador’s Bitcoin journey will be viewed as a success or failure. The country’s push for economic independence through Bitcoin, coupled with the introduction of Bitcoin-backed sovereign debt instruments, referred to as “volcano bonds” and expanded tax bases, presents a complex narrative.

However, Santander, a Spanish banking conglomerate, praised El Salvador for its new “market-friendly approach to policy management” and growing willingness to repay debt. According to Santander, the surge in Salvadoran bond prices “almost defies gravity”, and the government may soon be able to join Eurobond financing markets.

Furthermore, the recent introduction of the “Freedom Visa” program, attracting high-net-worth individuals with a financial threshold in Bitcoin or USD, adds another layer to El Salvador’s evolving economic strategy. According to reports, the initiative has gained traction, and the El Salvador National Bitcoin Office (ONBTC) stated that it has received numerous applications and anticipates that it will be full by the end of 2023.

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