Back in September 2021, El Salvador became the first country in the world to recognize Bitcoin as legal tender, alongside the US dollar. President Nayib Bukele was the primary driver behind the move and the country put $120 million of the country’s budget into the investment.
There was immediate international reaction to the move. Cryptocurrency is known to be extremely volatile with Bitcoin a prime example. In the space of two months in 2022 it lost over 50 percent of its value, falling from a high of $67,734 to little over $30,000 in just two months.
Now, try and apply that currency volatility to buying items. Currency that can fluctuate so much has very little use for buying goods and is basically just an investment item.
How has the investment faired?
President Bukele recently claimed that the Bitcoin purchase was finally making profit, nearly three years later. At one point it was worth just half of the initial investment.
“El Salvador’s Bitcoin investments are in the black,” Mr Bukele posted on X.
There had been “literally thousands of articles and hit pieces that ridiculed our supposed losses”, he said. “It is important that the naysayers and the authors of those hit pieces take back their statements.”
Just out of curiosity, I decided to look at the change in value of Bitcoin and two other investment assets from September 7, 2021 when El Salvador’s Bitcoin law went into effect until today. pic.twitter.com/jIGN8vglLu
— Tim Muth (@TimMuth) January 31, 2024
However, the BBC spoke to economist Oscar Picardo, director of the Institute of Sciences at the Francisco Gavidia University, in San Salvador, El Salvador, who argues that the amount of outside funding of the Bitcoin project means “the result cannot be positive. The result is in red – and in intense red.”
What is El Salvador’s economic background?
The economy in El Salvador has never been particularly stable, but there have been great strides taken to reduce poverty in recent years. Between 2007 and 2019, poverty fell from 39 percent to 22.3 percent, while absolute poverty has been almost completely eliminated, according to the World Bank. President Bukele has also proved popular for taking strides to tackle gang crime, although his methods for doing so have been under question.
Conversely, the pushing of Bitcoin has not been so popular. El Salvador was rocked with protests in when the new currency came into effect, despite the handing out of $30 of bitcoin per person by the government.