In fanfare a year ago, El Salvador announced its ambitious plan to adopt Bitcoin as its national co-currency. In the following months, he said he was creating Bitcoin Bonds and a special Bitcoin City.
Interestingly, when the Bitcoin plans were announced on September 7, 2021, Bitcoin (BTC) the price was $46,811.13. But exactly a year later, on Wednesday, it was down more than 50% to $19,290.32, according to data from Coinmarketcap.
In July this year, El Salvador reportedly had 2,381 Bitcoins at an average purchase price of $45,171.
The story of a year ago
El Salvador announced his Bitcoin plans with great pleasure. The news made waves as the crypto market was at its peak and everything seemed bullish.
In September 2021, Salvadoran President Nayib Bukele said the country could save around $400 million in currency transfer fees per year if it stopped using traditional remittance and payment service providers.
To do this, he adopted Bitcoin as legal tender and launched a crypto wallet called Chivo, powered by Latin American crypto exchange Bitso. The exchange offers Salvadorans a commission-free transfer and payment experience in both BTC and US dollars.
Bukele also announced plans for an ambitious Bitcoin City in November 2021, along the Gulf of Fonseca, near a volcanic mountain, the possible site of a geothermal power plant to supply power to Bitcoin City and the city. mining bitcoin. This coincided with Bitcoin price crossing the $60,000 mark around November 2021.
To fund the plan, Bukele said his government would issue $1 billion worth of “Bitcoin bonds” using a tokenized instrument solution developed by Blockstream on the liquid network. Bukele said he would buy Bitcoin for $500 million and use the remaining $500 million for Bitcoin mining and building energy infrastructure.
One year later: what happened?
A year later, that experience seems to be going nowhere. According to a Reuters investigative report, “No heavy machinery, construction workers or raw materials to indicate progress toward building this great bitcoin symbol,” referring to the city of Bitcoin, the largest symbol of El Salvador’s ambitious plans.
According to Sharat Chandra, vice president of research and strategy at EarthID, a decentralized identity management company, El Salvador’s approach to bitcoin adoption was okay, but it went off the rails. in other areas without proper planning.
“El Salvador was right to adopt Bitcoin as a medium of exchange since the country does not have its own currency and is dependent on the US dollar. This has helped them get foreign remittances from their citizens working abroad. foreign without too much cost, but later decisions like Bitcoin City, Bitcoin Bonds (which saw low participation) were made with enthusiasm and without much strategic planning The idea was good, but the plan to execute it was done in a hurry, and so those ideas didn’t have much success,” Chandra added.
Some experts are still hoping for a turnaround on the strength of the idea. According to Hitesh Malviya, founder of itsblockchain.com, India’s oldest cryptocurrency and blockchain media publication website, “El Salvador was right to use the Bitcoin City Plan to attract investors and crypto-economy talents in the country and promote tourism, and if the city plan comes to fruition, it can boost El Salvador’s GDP.
According to a report in The Fortune in August 2022, That of El Salvador The billion-dollar bitcoin bonds face two major challenges: lack of investor interest in the bonds, and legal and legislative hurdles in parliament.
Paolo Ardoino, CTO (Chief Technology Officer) of Bitfinex and Tether, who works closely with the Salvadoran government, said in the article that government officials told him that the legislative issue could be resolved by September.
What is the future?
What happens to the future of the country and its bitcoin bet depends on where the crypto markets go.
“In the near future, if the price of bitcoin increases, say $100,000 or more, then El Salvador’s bitcoin bet works, and other countries that don’t have their own currency can adopt bitcoin as their legal tender. and follow the path of El Salvador,” says Malvia.
If the crypto markets remain as volatile as they are now or fall further, it goes without saying that the case of El Salvador will be held up as a bad example. Even in the past, many experts have called such a move highly speculative and risky.
“Bitcoin is a volatile asset because its price is influenced by factors such as geopolitical crises, economic situations and others. For example, the Russian-Ukrainian war, Taiwan-USA, inflation, rising interest rates interest from the US Fed (and) influenced the price of Bitcoin. I think the price could also go up (to) $10,000 in the near future if such events occur,” Chandra added.
Malviya, however, believes the likelihood of such a complete fall is low. “It all depends on how long the crypto market will take to recover from the current recession, inflationary and other factors. The Salvadoran economy must survive these difficulties under market conditions to reap the benefits of an eventual rebound in the crypto market.”
It is also a matter of surviving and sustaining during the bearish phase of the crypto market. “El Salvador has to survive the crypto downturn, and only then could its bet succeed,” Malviya added.
Bitcoin has no price floor and relies heavily on global indices to judge its price. El Salvador reportedly bought 80 Bitcoins in July as the price fell to around $19,000.