Will El Salvador become a global Bitcoin pioneer?

It was a bang: President Nayib Bukele will make the crypto reserve currency Bitcoin legal tender in the summer of 2021. And starts regularly buying Bitcoin from the treasury. During the long bear market: a bad deal. The wind has now changed. Bitcoin is climbing to new all-time highs – with promising future prospects. Will this make El Salvador a pioneer of global Bitcoin adoption by nation states?

How strong El Salvador is in the plus with BTC

The first purchase of 200 Bitcoin on September 6, 2021 Many more followed, so that El Salvador now has a remarkable 5,731 Bitcoin has in the portfolio. These have been safely stored in a cold wallet since March, for which Bukele has a public one Wallet address announced. What was lost in the media coverage surrounding his re-election: The wallet contains around twice as many Bitcoin as were originally thought to be in El Salvador’s possession. For example, quantified Forbes In June 2023, the number of BTC in the Bukele portfolio fell to “only” 2,473. Therefore, with a BTC rate of $64,400 at the time of going to press, the small country’s Bitcoin assets correspond to around $369 million.

It is unclear how much El Salvador’s overall portfolio is in positive territory because not all purchasing data is known. If you look at half of the officially announced BTC purchases, the Central American republic alone is up a remarkable 60.45 percent or $74.9 million. The average purchase price was $42,860, as of November 17, 2022 according to Bukele another Bitcoin is bought every day. From a private investor perspective, the El Salvador case conveys one important lesson: Time beats timing.

Instead of giving up immediately after a few months due to the price slide, the Salvadoran government, like many small Bitcoin hodlers, gradually increased its holdings and is now reaping the benefits. What’s particularly interesting is that the president apparently doesn’t doesn’t think about it, sell and take the current fiat yield. Instead, he seems to be convinced of the long-term potential of digital gold and is therefore continuing to hod in a disciplined manner. The new is considered the main source of income for financing new BTC purchases Naturalization program.

What’s happening with Bitcoin adoption

While Bitcoin is becoming more and more of a global store of value and Bukele’s bet is paying off in this sense, things are looking rather bad when it comes to using BTC as an everyday means of payment. When Bitcoin was introduced as an official currency in El Salvador, citizens were able to receive a small Bitcoin start-up capital worth the equivalent of 30 US dollars as a gift via the state-run Chivo wallet. But not least because of technical difficulties and a lack of knowledge about the cryptocurrency, widespread adoption cannot yet be said. A BTC-ECHO team discovered this on site in 2021.

According to national survey According to the Universidad Centroamericana “José Simeón Cañas”, only 12 percent of the population used Bitcoin at least once in 2023. Compared to the previous year, this means the number of users has halved, so the trend is negative. Even among the optimists among the 1,280 people surveyed, only 0.5 percent believed in Bitcoin as the main cause of economic improvement.

Instead, 25.3 percent recognized the decline in crime as a decisive factor. Bukele took tough action against the dangerous drug gangs. Under the president, who describes himself as the “philosopher king” on Twitter, the previously very high rate fell Murder rate by over 93 percent. This is largely what makes it so popular today among the country’s general population.

El Salvador as a state Bitcoin pioneer

So far there is hardly any sign of widespread adoption. It is mainly tourists and digital nomads from Western countries who are enthusiastic about Bitcoin. But this also creates hope for the future development of El Salvador, because recently there was a record with over three million tourists in 2023. These brought an estimated $3.8 billion into the country.

Vijay Boyapati explains to BTC-ECHO why El Salvador was the first country in the world to officially invest in Bitcoin. In his essay “The Bullish Case for Bitcoin” he wrote that adoption by nation states would trigger the last great BTC hype cycle.

My prediction even back then was that you need a strong executive branch in order to become a Bitcoin pioneer as a state. El Salvador fits this profile because the president can do things there that governments in other countries cannot. In the USA, for example, the president has less power than is generally assumed. Even if he personally supported Bitcoin, it would be difficult to pass any kind of pro-Bitcoin legislation.

Vijay Boyapati in the BTC-ECHO interview

Nevertheless, the El Salvador case came as a surprise even to him because he would not have expected something similar until the next hype cycle. The Central American country’s successful example could soon find its first imitators. Unofficially, some states could already buy, mine or otherwise appropriate BTC. According to Boyapati, it must be assumed that North Korea has already acquired Bitcoin through criminal means such as wallet hacking and phishing scams. In comparison, Bukele’s legal approach appears much more sympathetic.

Outlook on state BTC adoption

The likelihood of other emerging countries imitating the Bukele strategy is constantly increasing due to its success. For the time being, it is unlikely that the USA, Germany or other wealthy western industrialized countries will buy Bitcoin on a large scale. But why not neighboring Guatemala, up-and-coming Botswana or crypto-friendly Georgia?

In the future, governments of various countries will look at El Salvador and ask themselves: “This was a poor Central American country, why are they suddenly wealthy? Why do they have tourism? Why do they have this big budget surplus and these huge reserves?” Especially because of Bitcoin.

Vijay Boyapati in the BTC-ECHO interview

The small country therefore plays a similar role among nation states as MicroStrategy plays among companies. Not least due to the recent use of the US dollar as a geopolitical lever, both gold and Bitcoin have become more attractive from the perspective of numerous governments. It may still be just a small snowball that El Salvador kicked off in 2021, but over time it could become a roaring avalanche of government Bitcoin adoption.