Taking stock after two years: This is what has become of El Salvador’s ambitious Bitcoin plans

taketonews

Around two years ago, Nayib Bukele, the head of state of El Salvador, rushed forward with big plans: the introduction of Bitcoin as a means of payment was intended to lay the foundation for an ambitious crypto project that would make his country a pioneer. This is what the plans are currently like.

• El Salvador adopted BTC as legal tender two years ago
• Balance sheet sobering
• President’s plans have not come true

It was supposed to be a major crypto revolution: El Salvador introduced the cryptocurrency Bitcoin as legal tender around two years ago and made the Cybercoin the second official national currency. President Nayib Bukele pursued extensive crypto plans in the coming months and years and wanted to make his country an El Dorado for crypto fans. At the center of his ambitious project was the construction of a crypto city, which he wanted to finance by issuing government bonds. At the same time, Bukele repeatedly increased the country’s Bitcoin reserves.

Advertising

Trade Bitcoin and other cryptos via CFD (also with lever)

At Plus500 you can bet on rising and falling crypto prices – even with leverage. Try the free demo account now!

Plus500: Please note the Hints5 about this advertisement.

Summary after two years of Bitcoin

But after two years it is clear that the president’s hopes of making El Salvador a pioneer in cryptocurrencies have hardly been fulfilled. The country’s residents remain skeptical about Bitcoin: Although the Cybercoin is considered an official means of payment, it is used little in practice. Around a year ago, the state-owned wallet “Chivo”, with which the government wanted to simplify the use of digital means of payment, was only used by 20 percent of residents, as a study by the US National Bureau of Economic Research showed. The majority of Salvadorans probably only claimed the $30 Bitcoin bonus that the government guaranteed to every wallet user, but did not incorporate payment activities with Bitcoin into their everyday payment routine. According to the central bank, around one percent of payment transactions carried out this year were said to have been carried out with Bitcoin.

Bitcoin city on paper

And the Bitcoin city that Bukele wanted to create has not yet taken shape in reality. Bitcoin City still only exists on paper. Bukele had already published the planned floor plans in May 2022:

The president also promised that, among other things, his own airport is planned as well as a viewing platform with a direct view of the volcano, at the foot of which the city is to be built and which will also serve as a source of energy for mining Bitcoin and for the city’s electricity needs. But there has been no progress in the construction of the city so far, which is probably due to the lack of financing for the ambitious project.

Bitcoin price has not developed as hoped

Because Bitcoin has lost massively in value over the last two years, in line with the entire crypto market. The Bitcoins owned by El Salvador, which Bukele had increased several times, are now worth significantly less than at the time of purchase and have left massive holes in the government’s balance sheets.

Negative consequences for the country’s creditworthiness

This has raised doubts about the country’s financial stability. El Salvador’s creditworthiness has suffered severely; in 2022 alone, the rating agency Fitch downgraded the country’s creditworthiness twice and justified this with the “catastrophic” liquidity situation in the Central American country. Although El Salvador fought back a rating from Fitch after a debt swap, the experts at S&P, who did not view the exchange of pension debt with a mixture of new certificates to replace previous government financial liabilities as positive, pulled the ripcord and downgraded the state rating away.

All in all, since the start of the Bitcoin experiment, it has become significantly more expensive for local borrowers to take out loans.

Bitcoin project has not fulfilled hopes

After Bukele’s four years in office, it is clear: El Salvador’s current head of state’s most ambitious project has not met expectations. Investing hundreds of millions of dollars of taxpayer money in Bitcoin has not only failed to pay off, it has actually done the country a disservice in terms of creditworthiness. The hope for a massive increase in foreign investment has so far not been fulfilled, nor has the pioneering role that Bukele predicted for his country through his crypto push.

Editorial team finanzen.net



ttn-28