Did #bitcoin Help El Salvador?
El Salvador made history by becoming the first country to adopt Bitcoin as a legal tender in September 2021. At that time, they acquired approximately 2,381 BTC with an average purchase price of $43,357, valuing their holdings at $103 million. However, the current value of their holdings has decreased to approximately $83.335 million, which represents a 20% decrease from the initial investment.
El Salvador, already burdened by a high debt-to-GDP ratio of around 90%, had hoped that adopting Bitcoin as legal tender would bring prosperity. Unfortunately, this approach has not proven to be successful. The country cannot print new currency notes because it has adopted the U.S. dollar as its official currency, and only the U.S. Federal Reserve has the authority to print new notes. Additionally, Bitcoin's limited supply of 21 million coins cannot be increased, as it operates under a predetermined mechanism.
In its first year of implementation, El Salvador faced a $60 million loss, which turned out to be a hidden blessing. The government introduced the "CHIVO" mobile app, serving as a wallet for free transactions within the country and abroad. They also deposited $30 in every CHIVO wallet as a bonus, equal to 1% of the average income in El Salvador. Despite these efforts, around 7 out of 10 people in El Salvador remain dissatisfied with the new Bitcoin law, and 86% of medium and small businesses do not accept it.
On a positive note, Bitcoin adoption has boosted tourism, with a 30% increase in tourism after accepting Bitcoin. Nonetheless, the overall impact of Bitcoin adoption on the country's economic prosperity has been limited. El Salvador's staggering debt of around $23.69 billion in 2021 is likely a significant factor contributing to the challenges the country is facing. It remains on the brink of defaulting due to its international debt, domestic debt, and impending payments.
