On Thursday, El Salvador owns in total about 1000 bitcoins (BTC), following a new purchase of 420 BTC for about 60k USD each.
On October 8th President Nayib Bukele revealed that El Salvador had bought an additional 420 BTC worth around $25 million. This takes their totals BTC holdings to above 1000 coins. This comes after a series other purchases that took place when the country was making the transition to Bitcoin as Legal tender next to the US dollar.
Shortly after the President revealed that the country was already making profits from buying the Bitcoin dip. According to him this is possible when the price of the asset rises making a profit on the initial investment that they made allowing the government can cash out its profits. Now that we know what is going on let’s take a look at how they got here.
The Bitcoin Law in El Salvador
June 5th 2021 is a date that a lot of El Salvadorans will remember for a long time. Their president Nayib Bukele declared that Bitcoin was going to be legal tender in the country. A thing that had never before been heard of in the world. True to this word, the Bitcoin law was passed and was set to take effect on 7th September, 90 days after the law was passed.
Contrary to what many people think, the now-president has been experimenting with cryptocurrency for a while now. El Zonte, a coastal village has been on an active experiment since 2019 to use BTC in the local economy to pay bills and purchase commodities. According to Bloomberg News, the president and other members of the Nuevas Ideas party have owned cryptocurrency for years.
The president had made his aspirations public at a conference in Miami that same month. He announced that he was going to push for the promulgation of a law that allowed Bitcoin as legal tender saying that it was going to “help provide financial inclusion to thousands outside the formal economy and generate jobs for a lot more”.
Just a day before the coin was formally adapted as currency, El Salvador went ahead and bought roughly $20.9 million worth of BTC. Based on a series of tweets by the president, the country had purchased a total of 400 bitcoin to aid the transition towards the digital asset. He went on to add that their brokers will be buying a lot more as the final deadline approached.
As part of the initial rollout, a local newspaper published that the government would release an official digital wallet for BTC and other currencies. This wallet, Chivo, was going to be the basis of everyday transactions. To make it enticing the government promised 30 dollars’ worth of BTC to every citizen who downloaded the app and signed up.
This incentive was good enough to ensure that the E-wallet crashed in the early hours of the first day of the law being passed. Relevant measures were taken and Chivo was taken offline. Server capacity was increased and the wallet was brought back online by Midday of the same day. All these moves proved the government’s commitment to the project.
It was not smooth sailing from here on though. 7th September recorded a crash in Bitcoin prices, the lowest that the cryptocurrency had experienced that entire month. This crash resulted in a loss estimated at $3 million paper loss from its earlier purchase. To solve this the government went ahead and bought more Bitcoin stabilizing the price at just above 52000 USD.
This was met by varied responses as some 1000 people took to protesting on the streets of San Salvador while others posted videos of their transactions on Social Media. The protestors cited issues that ranged from mistrust to technical glitches and the dip in the price as issues of concern which the president promised to address.
The main concern by the residents has been the acceptance of Bitcoin as a mode of payment by most establishments. Although big retailers like McDonald’s and Starbucks have been fast to embrace this new change smaller retailers have complained that a lack of infrastructure is what is slowing them down.
It seems that patience is all that was needed, however. A report that came out a month after the adoption showed that the number of El Salvadorans that had Chivo, the e-wallet had surpassed that of those that had a bank account. This has been aided by incentives from the government and from other industry players like gas stations that offer a discount when payments are made through the Chivo app.
Another government incentive that was meant to aid this transition was the Installation of Chivo Bitcoin ATMs in cities across the US. This is because 21% of El Salvador’s GDP is dependent on remittances from the US. Being its neighbor, the US houses more than 2 million Salvadorans who spend $400 million on remittance fees annually.
The aim, therefore, is to make it much easier and cheaper than it is now. As compared to similar services like Western Union, Chivo members can make withdrawals at ATMs, recharge their accounts and use their wallet apps to send either Bitcoin or USD to their loved ones back at home. These Chivo ATMs can be found in Dallas, Chicago, Atalanta, and Los Angeles.
Only time will at this point. The optimism of the El Salvador president is surely impressive but the numbers don’t look that promising. All the countries in the world have now turned their eyes to this Central American country to see whether the times will be kind to them or not.