Today it is impossible to talk about El Salvador without mentioning Bitcoin, and vice versa. Since the Central American country turned cryptocurrency into legal tender, there has been a permanent stir around that decision and the consequences —both positive and negative— that it could bring in the future. And everything goes hand in hand with the figure of the young Salvadoran president Nayib Bukele.
Bitcoin began to function as legal currency at par with the US dollar in El Salvador in September 2021; and although the measure has generated a lot of curiosity, there are still several issues that are not too clear in this story. Among them, what results has the nation achieved since it started buying the digital currency in quantities.
in the last hours Bloomberg published a report analyzing the performance of the investment in Bitcoin made so far by the Nayib Bukele government. The conclusion of the aforementioned medium is that El Salvador has probably lost money, and there are reasons to think that this reading is accurate (the fall in the price of the crypto, without going any further); but it is also true that the plot has several grays that do not allow us to know with absolute precision what the panorama of this initiative is.
The report shows that from September 6 of last year to date, El Salvador has bought 1,391 bitcoins. It is worth noting that there are no public records of each purchase other than Nayib Bukele’s tweets reporting the transactions in his personal account. Until now, the Salvadoran authorities have carried out 8 transactions for an amount greater than 70 million dollars; that, according to the price of Bitcoin at the time of each acquisition.
The largest purchase in a single day was on October 27: 420 bitcoins at an average value of $58,630 each, for a total investment of $24.6 million. The smallest was that of last December 21, the last of which there is mention, when El Salvador obtained 21 bitcoins in exchange for one million dollars, paying an estimated price of $49,258 for each one.
The price of Bitcoin has not been an ally of El Salvador in recent weeks
While the price of Bitcoin continued to rise, El Salvador’s crypto plan did not suffer major setbacks. Recall that the cryptocurrency reached its highest price in history on November 10, 2021, when it was briefly traded for $69,044. Some community enthusiasts bitcoiner they estimated that the crypto would hit $100k before the year was out. However, this projection was not only not fulfilled, but the price of Bitcoin suffered a severe decline that was accentuated in the first days of 2022 ($40,836.49 on January 8), and since then it has tried to slowly rebound.
How much is the Bitcoin that El Salvador has today worth, then? It’s hard to say, really. Assuming that the country still has all the cryptocurrencies acquired, and taking the BTC price at the time of writing this article ($42,950, approximately), we would be talking about 59.7 million dollars. Thus, if we consider that more than 70 million were spent to buy them, the Central American nation has effectively lost money with this investment.
But we return to the above: there are many grays in this story. El Salvador has developed a plan to mine your own Bitcoin using a farm that is powered by geothermal energy from a volcano; but until now it is unknown how much has been achieved with this method. Also, as the addresses of the wallets used by the State have not yet been made public, it is impossible to audit the purchase or sale transactions. In other words, citizens must trust that the coffers of their country have as much Bitcoin as Nayib Bukele assures that they have.
Bloomberg indicates that Alejandro Zelaya, Minister of Finance of El Salvador, recently acknowledged that part of the Bitcoin purchased has been converted back to dollars, but without providing further details. For this reason, it is really impossible to make a really accurate final balance of what the country’s crypto landscape is.
They have not returned to ‘buy the dip’
When the price of Bitcoin began to decline after reaching its all time highBukele announced a couple of times that he was “buying the dip”; that is, it took advantage of the drop in price to acquire more digital currencies knowing that its price would rise again. However, as we indicated above, no new purchases have been publicly mentioned since December 21, even when the price of the cryptoactive recently touched 40 thousand dollars. A situation that is less striking, especially if the strategy is to keep Bitcoin safe in the long term (“hodle“, as they say in the environment).
Let us also remember that El Salvador announced at the end of last year some really daring plans to deepen its relationship with Bitcoin. On the one hand, the creation of the BitcoinCity, a city based on the use of cryptocurrency in which it is promised that no taxes will be collected, with the exception of VAT. And a 10-year, 10-year, 6.5% coupon bond will also be issued; the intention is to use half of said amount to buy more BTC, and the rest for infrastructure expenses.
On the other hand, in recent months social networks have seen a sharp increase in complaints and reports from Salvadoran citizens about the disappearance of the Bitcoin they kept in Chivo Wallet, the state digital wallet. Meanwhile, Nayib Bukele has starred in several crossovers via Twitter with opponents of his economic plan; and even has trolled to the media raising doubts about his plan.
Of course, El Salvador’s plan has its logical roots. Cryptocurrencies have become an answer for many people who live in countries where the economy is always on the verge of collapse; either to escape rampant inflation or as a long-term store of value. But nevertheless, the use of public funds to invest them in an asset as volatile as Bitcoin raises doubts that are also valid; and the lack of official information does not collaborate in terms of transparency.
The success of Bukele’s initiative will always be tied to the state of the market and how it affects the price of Bitcoin. If the price reverses its current state and rises to new all-time highs, there will be no shortage of optimists to back the project; The important thing will be to analyze the reactions of both the authorities and the citizens if there are times of great turbulence that do not allow them to look beyond the negative impact on their daily economy.