Cryptocurrencies have continued to fall this week, reducing the value of currencies such as bitcoin by millions.
The crash is hitting investors around the world, including the government of The Savior: the Central American country has invested millions of dollars in bitcoins and turned it into legal tender nine months ago, encouraging people to use it in their everyday transactions.
From trinkets and tacos to gas and even houses – one can buy just about anything in El Salvador with bitcoins.
Shopping with cryptocurrencies from street vendors and major chains is an extraordinary experience.
It shows how far bitcoin has come since it was invented on internet forums in 2008.
President Nayib Bukele’s decision to legalize cryptocurrency means that, in theory, it should now be accepted by all businesses, alongside El Salvador’s other currency, the US dollar.
But the latest cryptocurrency crash has raised more questions about the policy, especially about the use of nearly $100 million of public funds to buy bitcoin, something the president celebrated each time with a tweet.
El Salvador just bought the dip! 🇸🇻
500 coins at an average USD price of ~$30,744 🥳#bitcoin
– Nayib Bukele (@nayibbukele) May 9, 2022
The 2,300 bitcoins in the country now they are worth half than the government paid for them, but the finance minister has dismissed the criticism, saying there is “extremely minimal fiscal risk”.
The place where El Salvador’s bitcoin movement started is The Zontea small surf and fishing town on the south coast.
Here in 2019 a anonymous donor gave a group of cryptocurrency fans the first of many large bitcoin donations.
Nobody admits to knowing who he or she is, but the deal was that the people could keep the digital currencies on the condition that they were not converted into dollars.
The idea was to create the first circular economy of the world’s bitcoin, where people could be paid in bitcoin – a peer-to-peer internet cash system – and used for everyday life.
It is a radical idea. In the rest of the world, bitcoin can be used to shop online, but except for a small number of trendy cafes or one-off projects, it hasn’t been possible to use it in regular shops.
El Zonte has so far received around $350,000 from his anonymous benefactor, a significant amount for this ramshackle but beautiful town, now also known as Bitcoin Beach.
Katerina Contreras was one of the first beneficiaries.
Two years ago, during the pandemic, he was offered a lifeguard course and it seemed like a good deal. The organizers paid for the transportation and food of the participants in bitcoins.
“Then for six months we worked as a lifeguard and they paid us our salaries in bitcoins,” says Contreras.
Some businesses in the city say they have seen a 30% increase in trade as bitcoin tourists, fueled by dedicated cryptocurrency YouTube channels, are drawn to the novelty of spending their digital coins on the holidays.
However, the adoption of this cryptocurrency still irregular.
My travels led me to conclude that the further you get from Bitcoin Beach, the less likely you are to be able to buy things with the digital currency.
On this beach, just over half of the businesses I came across accepted bitcoin, but an 80-minute drive from there, in the capital, San Salvador, it’s more like a quarter.
The government says it has no plans to force businesses to accept bitcoin, although they should under the country’s Bitcoin Law. Until now it has been limited to offering incentives.
Cash still reigns herewith more than half of Salvadorans not having a bank account, but President Bukele has poured US$200 million of public money into a subsidized bitcoin wallet app called Chivo.
Anyone who downloads the app receives $30 in bitcoin for signing up, which may explain why it has been downloaded four million times, in a country of 6.5 million people.
But many people use the app for transactions in dollars, not bitcoins. It is often used this way, for example, by people who work abroad and send money home to their families, as there are no commissions or fees for making transfers.
And there are signs that after initial interest, people are using it less.
Another incentive to use it came at the end of February, with the opening of the most advanced animal hospital in the country.
There it is common to see long queues, with people and pets taking refuge under roundabouts waiting for their appointment. And that’s because all animal care, even complex surgery, costs just 25 cents, as long as it’s paid for with the Chivo app, and preferably in bitcoin.
Staff say the center is paid for with “bitcoin earnings,” but government officials did not respond to requests to explain how these earnings were made.
The International Monetary Fund (IMF) has been urging El Salvador to reverse its decision to make bitcoin legal tender, arguing that it is too unstable for this purpose, and local economists like Tatiana Marroquín are growing concerned.
She says that the government does not have enough money to help vulnerable people, so it should not take risks by investing public funds in cryptocurrencies.
He adds that there is also a lack of transparency.
“We don’t know exactly when or with what money they bought bitcoins.”
However, the Minister of Tourism, Morena Valdez, insists that Salvadorans have confidence in President Bukele, despite the fall in the value of bitcoin.
“We know that each of the president’s decisions are made at the right time. People have a lot of confidence in his decisions and in how the country’s economy is doing”, he assures.
Other countries were thought to be considering going the way of El Salvador, before the latest collapse began in May, although the Central African Republic he is the only one who has done it.
The country’s president, Faustin-Archange Touadéra, announced his decision on Twitter, describing bitcoin as “universal money.”
El Salvador now wants to go further.
President Bukele has announced plans to build a new city, Bitcoin Cityat the foot of a volcano that will provide geothermal energy and power a giant bitcoin mine.
- The “volcano bond” with which Bukele seeks to indebt El Salvador in bitcoin
He hopes to raise the money by selling $1 billion of “volcano bonds,” though these were meant to go on sale in March and have yet to appear.
Officials say they are confident they will be able to raise the funds and pay a looming $800 million foreign debt bill.
But the cryptocurrency crash is increasing pressure on this government, which continues to bet big on bitcoin.
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