Bitcoin advocates were waiting for him with open arms in Miami.
Nayib Bukele, president of El Salvador, was going to be one of the main figures at the Bitcoin Conference 2022, the world’s largest cryptocurrency event.
But at the last minute, the president canceled the visit due to “unforeseen circumstances” that required his presence in a country that has been under a state of emergency since March 27, after more than 80 murders were reported in one weekend.
A state of exception that restricts individual freedoms in the context of a government campaign against Salvadoran gangs or maras, which includes, among other measures, mass incarceration, restrictions on the press, and legislative changes so that 12-year-olds can be tried as adults.
This internal crisis occurs precisely six months after bitcoin became legal tender in El Salvador, a country of 6.5 million inhabitants where one in four people lives in poverty.
Being legal tender means that, theoretically, everyone can make transactions with bitcoin, in the same way that the dollar, El Salvador’s official currency for two decades, has been used.
Promoted by Bukele, the cryptocurrency is part of a narrative that coincides with that of the crypto evangelists who consider the digital currency as the symbol of freedom from “the tyranny of the dollar”.
Especially in the US, where the cryptocurrency market has been clothed in an ideological foundation defended by radical republicans and anarcho-capitalists who see bitcoin as the most effective way to get rid of central banks and reduce state control, under the promise that everyone can get rich when the price of currency reaches stratospheric levels.
The “volcano bonus”
Although Bukele did not make it to the world bitcoin conference in Miami Beach, the one who did make it was his cryptovolcano. And with artificial smoke coming out from inside.
In the center of one of the event halls they set up a gigantic representation of the Salvadoran volcano that is now part of the Bitcoin iconography.
What is coming now, as announced by the government, is an ambitious project: borrow the country in bitcointhat is, to issue a bond in the international market, as does any State that requires financing, although in this case the bond would be backed by cryptocurrency.
A bond that, if issued, would increase El Salvador’s gigantic public debt, which is currently 85% of the Gross Domestic Product (GDP).
If you are wondering why they call it a “volcano bond”, the reason is quite simple: half of the bond money would be used to buy more bitcoin and the other half to finance the start of the construction of the volcano. a city at the foot of theConchagua volcano called Bitcoin City.
“We will create the shelter for freedom”
Bukele announced on Twitter in mid-February the sending to Congress of a battery of legal reforms that includes granting citizenship to businessmen who invest in the Central American country and other initiatives to favor the arrival of foreign capital.
“The plan is simple: As the world falls into tyranny, we will create a haven for freedom,” the message read.
I’m sending 52 legal reforms to congress, to remove red tape, reduce bureaucracy, create tax incentives, citizenship in exchange for investments, new securities laws, stability contracts, etc.
The plan is simple: as the world falls into tyranny, we’ll create a haven for freedom.
– Nayib Bukele (@nayibbukele) February 20, 2022
That refuge for freedom that Bukele points out, contemplates the construction of Bitcoin City, a kind of futuristic city that would use geothermal energy generated by the volcano, the same that would feed the powerful computer networks that are used to create (or mine) new bitcoin.
Under this speech the volcano becomes the key piece that not only allows to give life to a cryptocitybut also to the future of the public finances of a nation that, with the increase in the value of bitcoin, would become a rich country.
El Salvador will then be the world capital of cryptocurrency and Bitcoin City, a tax-free city where all foreign and local investors will be able to create their own earthly paradise with zero polluting emissions thanks to volcanic energy.
Precisely the volcano has been transformed into the image that represents the Bukelean “refuge for freedom” that is so celebrated by crypto-evangelists.
What happened to the bonus?
The government announced that the volcano bond would be issued, possibly, in mid-March. But so far it has not happened and the authorities warned that the decision depends on the international context, alluding to the war in Ukraine.
“This is a matter of timingof seeing, measuring market trends, what is in vogue and basically starting from that, “said the Minister of Finance, Alejandro Zelaya, a few weeks ago, while skepticism grows about whether the debt issue will ever take place. .
Thus, as long as the government does not obtain international funds, the dream of obtaining geothermal energy from the Conchagua Volcano and building Bitcoin City will have to continue waiting.
The danger of “bitconizing” public finances
It is clear to those in the cryptocurrency market that the price of bitcoin skyrockets and plummets moving billions of dollars overnight.
The large investment funds or the multimillionaires who have placed their bets in this market do not lose sleep when the price falls because they are convinced that it will rise again. After all, they are used to the ups and downs of the stock market and when you have a diversified portfolio, you can always lose on one side and win on the other.
For them, bitcoin is considered a high-risk, high-return investment if you do a good deal. As in any other market, it is about entering at the right time and selling when it is most convenient.
But for a Salvadoran with limited economic resources, the rise and fall of the digital currency It can make the difference between eating and not eating.
Half a year after the Legislative Assembly controlled by Bukele approved bitcoin as legal currency in the country, its value has fallen substantially.
Some economists calculate that in this period the country has lost more than US$7 million, but since the price is so volatile, that figure varies according to the daily evolution of the cryptocurrency.
Government supporters argue that it is incorrect to speak of losses when the government has not sold its bitcoin. The day you sell them, they add, the profits or losses will be made effective. Regardless, crypto evangelists posit that bitcoin will be so valuable in a few years, that the best strategy is to resist down cycles and keep accumulating.
That works when the investors are companies or individuals, but what happens when they are the public funds of a country? What happens if the government changes in the 2024 elections? Or if the strategy against gangs is not strong enough? successful and the business collapses due to the climate of violence?
What happens if the plan to obtain geothermal energy from the volcano does not work?
“People don’t occupy it”
Another question that is spinning in the air is whether citizens really use bitcoin in their daily lives and if they receive remittances in the cryptocurrency from their relatives in the United States.
The problem with the adoption of bitcoin in El Salvador, Salvadoran economist Tatiana Marroquín tells BBC Mundo, is that “only a tiny group of people” uses the digital currency in the country.
“This project has been unsuccessful, because if the main objective was for the population to use bitcoin on a day-to-day basis, it does not. People don’t use it.”
The economist explains that shortly after the Bitcoin Law was approved, many Salvadorans with cell phones downloaded the application in order to receive a US$30 bonus given to encourage transactions with the cryptocurrency.
However, “most people did not use the application again after collecting the bonus,” he says.
Marroquín is concerned about the use of bitcoin by “the little transparency in the use of public money”precisely when the country has to pay close to 30% of the budget for this year in interest and capital of public debt.
“The burden of paying the debt is quite large, similar to what goes to health and education,” he argues.
Doubts about the digital wallet
In El Salvador the word “goat” is used as a synonym for something good, to say “I agree” or “I like it” and the expression ¡qué goat! It is used to express admiration or joy.
Hence, the name of the electronic wallet used by the government to store bitcoins is Chivo Wallet.
It is that in the same way that dollars are deposited in a bank, bitcoins (represented in codes) are stored in digital wallets or purses from where transactions are made.
This wallet has come under fire because some users report losing money on trades they never made. But at the level of public finances, the wallet has been the target of harsh questioning due to the difficulties that exist for Salvadorans to track the destination of the funds paid by taxpayers.
According to the Salvadoran media outlet, El Faro, the Chivo Wallet belongs to the company Chivo SA de CV, “a corporation founded with public funds.”
“Chivo SA de CV was born with an initial investment of US$60 million from the Development Bank of El Salvador (Bandesal), an amount destined exclusively for the purchase of bitcoins.”
As it is a private company, the publication explains, “it is not required to comply with the regulations of the Law on Access to Information”, which makes it more difficult to control its operations.
BBC Mundo contacted the government of El Salvador, but received no response.
Bukele’s response to the IMF: The Simpsons
Organizations such as the International Monetary Fund (IMF) have criticized the Salvadoran government’s decision to adopt bitcoin as legal tender.
“There are great risks”tells BBC Mundo Alina Carare, head of the IMF Mission in El Salvador.
The economist argues that the cryptocurrency can threaten the financial stability of the country and assures that she is especially concerned about “the volatility of its price.”
For these reasons, he adds, “we do not recommend it.”
On the other hand, cryptocurrencies could open the door to illicit money, terrorist financing or tax evasion, says Carare, as well as putting users at risk of possible cybercrime.
To the criticisms made by the IMF, Bukele responded by comparing the organization with the television series, The Simpsons.
– Nayib Bukele (@nayibbukele) January 26, 2022
In the same way that it is a mystery if El Salvador will one day build Bitcoin City, it is also not known how long the world of bitcoiners will continue to use the Conchagua Volcano as the icon of freedom against the dollar.
In any case, when it comes to symbols, at least there is already a statue that represents Miami’s support for cryptocurrencies: the bull with laser beam eyes, a parallel bitconian in response to the legendary Wall Street bull statue.
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