El Salvador marks first year of bitcoin usage as trust wanes

El Salvador marks first year of bitcoin usage as trust wanes

The study found that bitcoin mining generated 30,700 tons of e-waste in the 12 months to May. — © AFP

Carlos Mario Marquez

A year ago, El Salvador began accepting bitcoin as legal tender following a controversial and heavily criticized decision by President Nayiba Bukele.

Things seemed rosy in the first few months as citizens enthusiastically embraced the new opportunity, but since then Bitcoin’s value has plummeted, with some experts saying the move has failed.

Maria Aguirre, 52, owner of a shop in the seaside resort of El Zonte, which has been a major hub for bitcoin use, says things have been going well in the past year as the value of bitcoin rose from $52,660 when it opened on September 7, 2021 to more than $68. 000 dollars for a pair. months later.

“But over the past five months, it has only been falling,” said Aguirre, who continues to accept bitcoin transactions.

Bitcoin fell below $20,000 for most of September.

In El Zonte, about 60km southwest of the capital San Salvador, bitcoin was already in use prior to the move of Bukele, which was designed to encourage a population where only 35 percent of people had an account with a financial institution in 2021, according to the World Bank. year. .

El Salvador became the first country to accept bitcoin as legal tender alongside the US dollar, which has been the official currency for two decades.

The government even created the Chivo e-wallet and gave each user the equivalent of $30.

By January, the app had been downloaded four million times, Bukele said, an impressive number for a country of 6.6 million, although a diaspora of three million lives mostly in the United States.

Bukele’s idea was to have remittances, which make up 28 percent of El Salvador’s GDP, go to Chivo, meaning less money wasted on fees to exchange agencies.

However, former central bank president Carlos Acevedo says the authority’s records show that “less than two percent of remittances come through digital wallets, which means it hasn’t done any good either.”

Carmen Maggia, a 22-year-old university student, said she used bitcoin in the beginning, “but given how things are going, now I don’t trust it and have deleted the app.”

– Volatility –

When Bukele’s plan was launched, Aguirre had been using bitcoin for eight months at a Pacific seaside resort that is popular with surfers.

After bitcoin soared in price between September and November 2021, Bukele announced a plan to build Bitcoin City, a tax haven for cryptocurrencies and blockchain technology in the Gulf of Fonseca, which will be powered by the geothermal energy of the Conchagua volcano.

To build it, Bukele was about to issue $1 billion worth of Bitcoin bonds, but those plans were put on hold due to the volatile cryptocurrency market, which led to the collapse of some less reliable currencies, and Bitcoin was hit hard.

Bukele’s plan cost El Salvador $375 million, according to ratings firm Moody’s.

Taking advantage of the drop in value, Bukele bought 80 bitcoins at $19,000 each in July, bringing El Salvador’s total holdings to 2,381 bitcoins, all bought in the last year.

In June, he told fellow countrymen to “stop looking at the chart,” insisting that bitcoin was a sound investment that would bounce back.

“Patience is the key,” he said.

– A bit of enthusiasm –

But Acevedo insists that using bitcoin “hasn’t really worked” and that “so far, it’s really been a bad bet.”

But not a complete failure “because he can bounce back and get out of this crypto winter.”

Acevedo says that Bitcoin has fallen short of Bukele’s stated goal of “financial integration” and its drop in value has “psychologically affected people who aren’t enthusiastic about it.”

The adoption of Bitcoin also complicated El Salvador’s attempts to secure a $1.3 billion loan from the International Monetary Fund, which opposed the move.

Faced with warning that the country could default on a government debt that has topped 80 percent of GDP, Bukele announced in June a plan to buy back bonds that expire in 2023 and 2025.

He insists that the country has the money for this.

This has reduced the country’s risk from 35 percent to 25 percent, but Acevedo says El Salvador will not be able to return to debt markets until that figure drops to “at least five percent.”

In El Zonte, Chitara Hasboun, a hotel clerk, still thinks bitcoin is “a good way to pay” and he just “needs more time as it was given to the dollar.”

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