Just a few months ago, President Nayib Bukele asked Salvadorans for patience over the path the country’s investments in bitcoin had taken, a cryptocurrency that was plummeting and generating concern among some in the first country in the world to adopt it as currency. legal.
But now, when bitcoin has reached an all-time high, the president is pleased with his initiative. The rise of this cryptocurrency has generated more than 200 million for impoverished El Salvador. And Bukele says that having it as a legal currency brings him revenue through different means, such as a program with which foreigners can obtain citizenship in exchange for investing the equivalent of $1 million in bitcoins.
“Now that the market price of bitcoin has risen a lot, if we were to sell, we would make a profit of over 40% (from market purchases alone), and our main source of BTC is now our citizenship program,” added the leader.
The president’s publications on the X network may make some think that a huge amount of money is coming into the country. And in principle it is true, but seen from a broader perspective, those millions that would have been earned from investments in bitcoin are just a fraction of the foreign debt of almost $5 billion that that nation had until the third quarter of 2023, according to data from Moody’s Analytics.
According to Nayib Bukele’s portfolio tracker, since El Salvador approved bitcoin as legal tender in September 2021, he has acquired 5,691 BTC at an average cost of just over $42,600. Having invested approximately $122 million from its treasury, El Salvador’s portfolio now accumulates more than $360 million.
“We have decided to transfer a large portion of our bitcoin to a cold wallet and store that cold wallet in a physical vault within our national territory. You can call it our first ‘bitcoin piggy bank’. It is not much, but it is honest work,” the president announced last Friday in X, in a tweet in which he shared the first transfer, of 5,689 BTC, which at the current value would be more than $400 million.
A cold wallet is a type of savings bank account, in which cryptocurrencies that are not going to be used immediately can be stored, and these do not suffer from price increases or decreases.
After a sustained streak of decline, which raised criticism from international organizations and concerns from citizens, on Tuesday of last week bitcoin reached $69,000, setting a new record that was broken again on Monday, trading above $73,000.
Investing a country’s resources in cryptocurrencies is a novel approach and at the same time risky and not recommended by major financial organizations in the world.
Bukele says that, for now, he will not sell El Salvador’s bitcoins
The president has made it clear that “we will not sell” amid the cryptocurrency’s upward trend. Bukele insists that by adopting bitcoin as legal tender in the country, along with the dollar, El Salvador also created other types of profits like those we mentioned at the beginning of this note.
The government of El Salvador also alleges that millions of Salvadorans “have already used the money of the future.” It also boasts of having saved Salvadorans tens of millions of dollars in fees for sending remittances through bitcoins, and of using geothermal energy from volcanoes to mine this cryptocurrency.
But a December 2023 survey from the Universidad Centroamericana José Simeón Cañas in El Salvador revealed another picture.
Only 12% of the population of that country used bitcoin at least once in 2023 to pay for goods and services, a drop compared to 2022, when 24.4% used it, according to the same pollster.
Could El Salvador pay its debt thanks to bitcoin?
This is a narrative propagated by American investor and Silicon Valley venture capital specialist Tim Draper. He argued in a blog that El Salvador could become “one of the richest countries in the world” in a few decades thanks to bitcoin, and that it “could pay off its debt to the IMF and other financial institutions” with those profits.
Such an ambitious ‘prediction’ still needs to be backed up with facts. El Salvador still remains one of the most indebted in the world and according to this year’s IMF figures, its debt is equivalent to 73.4% of its Gross Domestic Product (GDP).
In January 2022, that body asked Bukele to eliminate bitcoin as legal tender in El Salvador.
“The adoption of a cryptocurrency as legal tender implies serious risks for financial and market integrity, financial stability and consumer protection and may give rise to contingent fiscal liabilities,” the IMF wrote then, in a fight with Bukele, who He maintained his bet on the cryptocurrency even though it continued to fall at the time.
With information from UNIVISION