El Salvador made Bitcoin legal tender one year ago. Crypto adoption has not been without issues in El Salvador, but it’s difficult to weed through the different stories about Bitcoin because there are so many competing interests promoting or FUDing Bitcoin. This article will cut through all the hoaxes and show you how Bitcoin is doing in El Salvador, one year after becoming legal tender.
Why El Salvador Made Bitcoin Legal Tender
El Salvador legalized Bitcoin ostensibly to provide a limited number of reasons. Here are the following reasons that were cited by government officials:
- Remittances to the United States are a significant source of income for many El Salvadorans. Remittances from the US actually make up 20% of El Salvador’s GDP. The fees for sending money to El Salvador can be quite expensive. Bitcoin transactions are inexpensive, therefore the El Salvador government has made Bitcoin legal tender in an effort to decrease the amount of fees that citizens will have to pay for remittances.
- About 70% of El Salvadorans don’t have bank accounts. As a type of bank account, Bitcoin transactions can be made.
- El Salvador relies on the United States Dollar. At the moment, El Salvador is facing a very high level of inflation. To protect itself from inflation, El Salvador switched to Bitcoin.
These are the only official reasons El Salvador used to make Bitcoin legal tender. El Salvador may have other reasons to legalize Bitcoin, but they won’t say them publicly.
It’s also important to note that USD is still legal tender in El Salvador. Despite Bitcoin legal tender, the country uses USD most of all. However, this section will focus on the actual use of Bitcoin in El Salvador since Bitcoin legal tender was established.
Bitcoin in El Salvador – The Reality
This section will discuss point-by-point the reasons El Salvador decided to make Bitcoin legal tender. Then, it will describe the real facts of the situation. First, the remittances system in El Salvador. Is it possible for Salvadorans to use Bitcoin as a means of remitting money?
Salvadorans don’t use Bitcoin to send money. Worldcoinstats.com reports that only 3.2% are made in Bitcoin. This is a very low percentage. Of course, no one expected this number to jump to 100% overnight, but it’s an underwhelming use compared to what many in crypto expected.
Is it possible for Salvadorans to use Bitcoin as a means of daily payments?
This is not the case. There’s no hard data on this figure, but it’s estimated that approximately 80% of shops in the country do not accept Bitcoin despite it being legal tender in the country. With that in mind, it’s unlikely that Salvadorans are using Bitcoin for most of their transactions.
This came as surprise because the Chivo wallet app (the official Bitcoin lightning network app of El Salvador) had over 4 million downloads when it was released. New Chivo wallets were given a $30 bonus deposit. El Salvador has a $12/day average income, making $30 a short amount of time for Salvadorans. Many people would be willing to download apps for $30 each, even though they earn so little per-day.
Have you found Bitcoin to be a useful hedge against rising inflation in the United States?
El Salvador has bought around $100 million of Bitcoin in the last year, at an average of $45,000. Bitcoin’s current value is approximately $19,000 El Salvador is losing more money holding Bitcoin as a result of USD inflation at 8.2%.
Of course, Bitcoin is more of a long term thing for El Salvador, so it’s a little silly to declare this a failure after only one year.
El Salvador: What’s Wrong with Bitcoin?
The above shows that Bitcoin in El Salvador is not the success many expected. There’s not much reason to fear, though. El Salvador has made Bitcoin legal in El Salvador only one year ago.
El Salvador chose the most unfavorable time to allow Bitcoin legal tender. That is why Bitcoin has been a problem in El Salvador. They basically did it right at the top of the bubble and then proceeded to buy “the dip” anytime the price dropped – the problem was the price kept dropping.
Anybody who went full-on on Bitcoin at that time would see a drop of around 50%. This happened to many people but it also happened in El Salvador. The country could have been up to 500% if El Salvador had made a Bitcoin investment a year ago. Its success would be praised by many.
It is possible that this happens if Bitcoin’s price rises once again. This was expected to happen after the Bitcoin halves. Problem is that 2024 will be the next Bitcoin halving. Will El Salvador be able to keep Bitcoin around for so long? Or, will El Salvador abandon cryptocurrency before it recovers in value?
Another problem with Bitcoin is the fact that El Salvador’s government made it compulsory to be used, which contradicts many of the crypto principles. Is it really cryptocurrency?
We would argue that it’s not really cryptocurrency if the government forces you to use it. People were forced to use Chivo’s wallet app by the government, which is known for its many bugs. This has caused a lot more Salvadorans to have negative impressions of Bitcoin. They associate the Chivo wallet app with all the bugs that are associated with Bitcoin.
However, this is only a minor issue. The bigger problem was that El Salvador picked the worst time to invest in cryptocurrency, but it’s still worth mentioning the other problem with the current system in El Salvador.
In El Salvador, Bitcoin is not yet legal tender. But there’s no reason for concern. Bitcoin is a long-term country project, and El Salvador should be able keep their Bitcoin experiments going.