The crypto world went wild when El Salvador made Bitcoin a legal currency. However, the present crypto winter has cast doubt on the decision. Cryptos are still in their infant stages, with much potential for expansion. However, some countries lead the charge for mass crypto adoption, while others lag behind. Despite making headlines, the government has yet to achieve widespread crypto usage.
El Salvador Drives Crypto Adoption
El Salvador’s President Nayib Bukele announced in September 2021 that the country would make Bitcoin legal tender. The move by the South American country made it the first nation to adopt bitcoin as a legal tender.
Bukele’s move is widely regarded as the first attempt by a country to use a volatile currency as legal tender. The legislation drew widespread criticism from the International Monetary Fund and top economists.
Several financial experts were skeptical of the decision’s outcome, citing Bitcoin’s high volatility. These critics claim that since crypto has no physical backing, the decision appears rushed and underdeveloped.
The crypto market volatility, particularly Bitcoin, has affected El Salvadors’ BTC adoption plan. Bitcoin was trading near $69,000 in November 2021. In June 2022, it plummeted to $30,000, a little more than six months later. In the last six months, the global crypto market cap has fallen from an all-time high of $ 3 trillion to $ 1.25 trillion.
Bitcoin Reception in El Salvador
According to a recent National Bureau of Economic Research (NBER) survey, Bitcoin adoption in El Salvador has floundered. The study states that more than 60 percent of respondents ditched the government’s Chivo wallet after receiving the $30 incentive. The Chivo wallet was made available to 2.1 million Salvadorans by year-end, accounting for 75% of the population.
Furthermore, the study found that 89% of Salvadorans had never received remittances using the app (only 3% of respondents used BTC). Also, the survey points out that 99 percent of respondents have never paid taxes with Bitcoin.
Further, the study found that 89% of Salvadorans had never received remittances using the app (only 3% of respondents used Bitcoin). Also, the survey points out that 99 percent of respondents have never paid taxes with Bitcoin.
Crypto Adoption Suffers Massive Setbacks
El Salvador’s unprecedented bitcoin adoption appears to have recently hit a snag. Bitcoin has dropped nearly 70% since peaking near $69,000 in November 2021. The global drop in BTC prices has harmed El Salvador, which is already dealing with a massive debt crisis.
The LATAM nation has seen its investments worth $105 million for 2,301 bitcoins drop by over half in value to around $51 million. However, the President, a die-hard crypto enthusiast, remains optimistic. On occasions, Bukele has hinted that the country might buy more bitcoin.
“Governments invest knowing the risks involved in every asset class, keeping a long-time horizon in mind. El Salvador will continue investing in bitcoin with confidence,” believes Jin Gonzalez, Chief Architect at Oz Finance.
Despite Mr. Bukele’s optimism, the ground reality in El Salvador does not seem to favor bitcoin adoption. A recent poll by an El Salvadorian University revealed that over 60 percent of the citizens still prefer to hold the dollar over bitcoin.
Additionally, about one-fourth supported El Salvador’s move to adopt bitcoin as a legal tender. A National Bureau of Economic Research report suggested that bitcoin usage is low. Also, it is mostly concentrated among the educated, banked and male population.
In fact, among the many reasons behind bitcoin adoption was to empower the large unbanked population – about 70% of the population. El Salvador is one of the poorest countries in Latin America. The introduction of BTC in the country was winged on ending poverty. However, bitcoin has added to the financial struggles amid the crypto winter.
The Salvadoran government is deeply in debt. For a long time, its economy has depended on loans. The IMF has urged El Salvador to withdraw its bitcoin legal tender decision. The US federal government has also opposed the country’s choice.
However, the president has ignored such warnings, putting the economy in danger. The IMF recently turned down a loan offer from El Salvador. These negative effects are severe, causing other nations to be hesitant to follow suit.
El Salvador bet its economic future on bitcoin. However, the gamble hasn’t paid off as well as President Nayib Bukele had hoped. The government’s crypto offers have been cut in half. Bitcoin adoption isn’t taking off across the country. Moreover, the country needs quick money to meet its more than $1 billion debt payments over the next year.
Meanwhile, El Salvador’s economic growth has slowed, and its deficit has remained high. The country’s debt-to-GDP ratio — a key metric used to compare what it owes to what it generates — is expected to reach nearly 87 percent this year. This raises concerns that El Salvador will be unable to meet its loan obligations.