September 7, 2022 marks exactly one year since El Salvador became the first country in the world to adopt Bitcoin (BTC) as legal tender through the application of the Bitcoin Law.
In advocating for Bitcoin as legal tender last year, the president of El Salvador, Nayib Bukele, promised that the adoption of cryptocurrency would benefit the 70% of the local population that did not have access to banking services in 2021.
The Salvadoran government also promoted Bitcoin as a tool to attract foreign investment, create new jobs and reduce the dependence on the US dollar in the country’s economy.
One can question the current real benefits of Bitcoin adoption in El Salvador, as the cryptocurrency has lost approximately 60% of its value since the country adopted it as legal tender.
On exactly this day, a year ago, BTC was trading at about $46,000, according to data from CoinGecko. On September 6, 2021, the Salvadoran government made its first purchase of Bitcoin, purchasing 200 BTC at $10.36 million, or an average price of $51,800. This is in stark contrast to current BTC prices, as the value of the cryptocurrency dipped below $19,000 on Tuesday. At press time, Bitcoin is trading at $18,806, down more than 64% in the past year.
According to data from Nayib Bukele’s investment tracker, El Salvador has already made 10 Bitcoin purchases that the government has made since adopting BTC as legal tender. The Salvadoran government has purchased a total of 2,381 BTC so far, which is, at current prices, worth $62 million less than the price El Salvador paid for its current BTC holdings.
The finance minister of El Salvador, Alejandro Zelaya, previously underlined that, Despite the price drop, the country did not experience any losses on their BTC purchases because they did not sell the coins. The Salvadoran government has also repeatedly delayed its Bitcoin bond project, citing unfavorable market conditions and geopolitical issues.
Amid falling cryptocurrency prices and the current bear market, some industry observers began referring to the adoption of Bitcoin in El Salvador as a “failed Bitcoin experiment.” Others suggested that this might not be the case, as it has apparently had some positive impact on El Salvador’s economy and financial market, including transaction costs.
Bram Cohen, creator of BitTorrent and founder of Chia Network, took to Twitter on Tuesday to point out that the amount of profit is often “not highly correlated to the amount of money it makes.” He suggested that some banks had to cut rates due to the emergence of cheaper Bitcoin transactions in El Salvador.
The same thing may be going on in El Salvador. Now that there’s a cheap-but-annoying method of doing remittances using crypto, the banks have had to cut rates to the point where their slightly better user experience is worth the price
— Bram Cohen (@bramcohen) September 6, 2022
According to the Central Reserve Bank of El Salvador, Salvadorans living abroad sent more than $50 million in remittances between January and May 2022. The adoption of Bitcoin and the Salvadoran government-backed Chivo wallet also contributed to a 400% increase in Lightning Network transactions in 2022.
“El Salvador is going to be the testing ground for so much innovation within Bitcoin,” said Ibex Mercado CEO Jose Lemus. He noted that there is no other jurisdiction that combines the “regulatory framework, political will, adoption and range of tools, and most crucial of all, the need for Bitcoin.” And he added:
“This makes El Salvador the perfect place to safely experiment with new Lightning apps and to build a thriving ecosystem of trusted, tested, and interconnected services.”
El Salvador’s Bitcoin Law has also been successful in terms of attracting foreign investment and tourism. As we told you before, tourism in El Salvador has skyrocketed in the first half of 2022, with an increase of 82%, given that 1.1 million tourists have visited the country this year.
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