Laila Keith
El Salvador's adoption of Bitcoin as legal tender in 2021 has been a highly controversial move, with international and domestic criticism of the decision. Despite the criticism and volatility of Bitcoin, President Nayib Bukele has continued to invest in the cryptocurrency, with El Salvador's holdings valued at over $147 million as of February 2024. With Bitcoin's price steadily rising, Bukele has defended his strategy, claiming that El Salvador's investment in BTC is in the black. As of March 2024, El Salvador's bitcoin holdings stood at a 50% profit, with a value of over $69,000 per bitcoin.
| Characteristics | Values |
|---|---|
| Date of first investment | September 2021 |
| Number of bitcoins purchased | 2,381 or 2,762 or 2,848 |
| Average price per bitcoin | $44,292 or $42,433.42 |
| Current market value | $115 million or $147 million or $173 million |
| Profit | $41.6 million or $3.7 million or 50% |
| Current president | Nayib Bukele |
What You'll Learn
El Salvador's bitcoin holdings are worth over $147 million
El Salvador's bitcoin holdings are worth more than $147 million, according to a post by the country's president, Nayib Bukele, in February 2024. This represents a profit of more than 40% on the Central American country's investment in the cryptocurrency.
Bukele wrote on social media: "When Bitcoin's market price was low, they wrote literally thousands of articles about our supposed losses. Now that #Bitcoin’s market price is way up, if we were to sell, we would make a profit of over 40%."
El Salvador first started buying bitcoin in September 2021, and it became the first country in the world to use the cryptocurrency as legal tender. The country has faced criticism for its adoption of bitcoin, both internationally and within El Salvador, due to the volatility of the currency, its environmental impact, and a lack of transparency regarding the government's fiscal policy.
Despite the criticism, Bukele has remained committed to his bitcoin strategy, even as the country's economy has struggled with stagnant growth, increasing poverty, and food insecurity. The president has touted bitcoin's potential to improve El Salvador's economy by making banking easier for Salvadorans and encouraging foreign investment.
In addition to making bitcoin legal tender, Bukele has also announced plans for Bitcoin City, a tax-free crypto haven powered by geothermal energy from a volcano. However, as of February 2024, construction on Bitcoin City had not yet begun.
While El Salvador's bitcoin holdings have generated profits, it is unclear what impact this has had on the country's overall economy and financial stability. Critics have argued that the volatile nature of bitcoin introduces unnecessary risk and instability to El Salvador's underdeveloped economy.
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The country's bitcoin investment strategy has been criticised
El Salvador's bitcoin investment strategy has been criticised both internationally and within the country. The International Monetary Fund (IMF) has been one of the most vocal critics, expressing concern over the potential risks to the country's financial stability, market integrity, and consumer protection. The IMF has recommended that El Salvador remove bitcoin's legal tender status and has warned that its continued use could impact the country's chances of securing financial support from the organisation.
The volatility of bitcoin and its potential impact on El Salvador's already fragile economy have been a significant source of criticism. Many experts have warned that the cryptocurrency's unpredictable nature could introduce unnecessary risk and instability, especially given the country's history of economic challenges. This concern was highlighted by Moody's Investors Service, which downgraded El Salvador's credit rating in part due to the adoption of bitcoin.
The environmental impact of bitcoin mining has also been a point of contention. President Nayib Bukele has announced plans to use sustainable geothermal energy for mining, but critics argue that the energy-intensive process of mining bitcoin contributes to pollution and environmental degradation. Additionally, there has been a lack of transparency regarding the government's fiscal policy and the creation of the Bitcoin Law, with protests occurring over the use of tax dollars to purchase bitcoin.
The limited internet penetration in El Salvador has also been criticised as a barrier to the widespread adoption of bitcoin, particularly given the digital nature of cryptocurrency transactions. Furthermore, there are concerns about the lack of financial literacy and digital literacy among the population, which may hinder their ability to fully understand and utilise bitcoin effectively.
Despite the criticism, President Bukele has remained steadfast in his support for bitcoin, touting its potential to improve the economy and attract foreign investment. He has repeatedly stated that El Salvador has no intention of selling its bitcoin holdings, even in the face of market downturns. However, critics argue that the country's investment in bitcoin has yet to bring significant benefits and that taxpayer dollars could be better utilised elsewhere.
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Bitcoin was made legal tender in 2021
El Salvador became the first country in the world to adopt Bitcoin as legal tender in 2021. The move was championed by the country's president, Nayib Bukele, who claimed it would improve the economy by making banking easier for Salvadorans and encouraging foreign investment.
On 5 June 2021, Bukele announced a bill to adopt Bitcoin as legal tender in El Salvador, via an English-language video at the Bitcoin Conference 2021 in Miami. He argued that the adoption of Bitcoin would make it easier for Salvadorans living abroad to send remittances to their relatives in the country.
On 9 June 2021, the Legislative Assembly of El Salvador voted to adopt the Bitcoin Law, with a majority vote of 62 out of 84 deputies in favour. The government set aside a $150 million cash reserve to back the country's bitcoin.
The World Bank rejected a request from El Salvador to assist with the implementation of the law due to transparency concerns and the environmental impact of Bitcoin mining. Despite this setback, the government pressed ahead with its plans, and on 7 September 2021, the Bitcoin Law came into effect, making El Salvador the first country in the world to adopt Bitcoin as legal tender.
The adoption of Bitcoin as legal tender in El Salvador was not without controversy. On the day of the launch of Chivo, El Salvador's government-backed digital wallet, thousands of protestors gathered in San Salvador to voice their opposition to the new law. Critics argued that the law lacked transparency in its creation and use of tax dollars to purchase Bitcoin. There were also concerns about the limited rate of internet penetration in El Salvador, which would restrict the number of people who could use cryptocurrency.
Despite the criticism and ongoing volatility in the value of Bitcoin, President Bukele has remained committed to his Bitcoin strategy. As of March 2024, El Salvador's Bitcoin investment stood at a 50% profit, with Bitcoin recording a new all-time high of over $69,000. Bukele has continued to tout the benefits of Bitcoin, including increased tourism and foreign investment, and has even announced plans for a "Bitcoin City", a tax-free crypto haven powered by geothermal energy from a volcano.
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The government set aside $150 million to back bitcoin
El Salvador's Bitcoin journey began in 2021 when it became the first country in the world to adopt Bitcoin as legal tender. The move was championed by President Nayib Bukele, who claimed it would improve the economy by making banking easier for Salvadorans and encouraging foreign investment.
The government set aside $150 million in cash to back the country's Bitcoin. This was not without controversy, as the World Bank rejected a request from the government to assist with the implementation of the law due to transparency concerns and the environmental impact of Bitcoin mining.
The decision to adopt Bitcoin as legal tender was met with criticism from both international financial experts and El Salvador's citizens. Critics argued that Bitcoin's volatility would introduce unnecessary risk and instability to El Salvador's underdeveloped economy. There were also concerns about a lack of transparency in the creation of the Bitcoin Law and the use of tax dollars to purchase Bitcoin.
Despite the criticism, President Bukele has remained committed to his Bitcoin strategy, even in the face of declining economic growth. He frequently responded to volatility in the cryptocurrency market by announcing on Twitter that he was "buying the dip". By June 2022, he had spent about $150 million, roughly 4% of El Salvador's national reserves, on Bitcoin.
As of 2024, El Salvador's Bitcoin holdings are valued at more than $147 million, with a profit of over 40%. President Bukele has stated that the country has no intention of selling its Bitcoin, even as critics question his decision to gamble taxpayer dollars on a risky investment.
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The World Bank rejected a request to assist with the implementation of the Bitcoin Law
El Salvador became the first country in the world to adopt Bitcoin as a legal currency in 2021. The country aimed to use Bitcoin as a parallel legal tender alongside the US dollar.
In June 2024, the World Bank rejected El Salvador's request for assistance with the implementation of Bitcoin as legal tender. The international lender cited concerns over transparency and the environmental impact of Bitcoin mining.
The World Bank's decision posed challenges for El Salvador's goal of ensuring Bitcoin was accepted nationwide within the following three months. The country's Finance Minister, Alejandro Zelaya, acknowledged that the implementation process would be complex and require significant technical assistance.
The rejection from the World Bank contrasted with El Salvador's discussions with the International Monetary Fund (IMF). While the IMF raised "macroeconomic, financial, and legal issues" regarding El Salvador's adoption of Bitcoin, they did not outright oppose the implementation.
The decision by El Salvador to embrace Bitcoin as legal tender was driven by President Nayib Bukele, who promoted it as a way to boost financial inclusion, facilitate remittances, and make it easier for Salvadoreans living abroad to send money back home. Remittances are a significant contributor to El Salvador's economy, accounting for around 20% of the country's gross domestic product (GDP).
Despite the initial enthusiasm, the adoption of Bitcoin in El Salvador faced challenges. A study by Yale SOM's David Argente and Diana Van Patten found that the use of Bitcoin and the Chivo Wallet app declined over time, despite incentives offered by the government. Trust and privacy concerns were identified as key factors hindering the widespread adoption of the cryptocurrency and the digital wallet.
As of February 2024, El Salvador's Bitcoin holdings were valued at over $147 million, with the country accumulating 2,381 bitcoins in its treasury. President Bukele touted the success of the investment strategy, claiming profits of over 40% on the country's Bitcoin holdings. However, critics questioned the decision to invest an unknown amount of taxpayer dollars in a risky investment, especially when the funds could have been utilized for other pressing needs.
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Frequently asked questions
El Salvador started investing in Bitcoin in September 2021 and has continued to buy Bitcoin since then. The exact amount invested is unknown, but it is estimated that the country has spent around $115 million to $173 million on Bitcoin.
As of March 2024, El Salvador's Bitcoin investment stood at a 50% profit, with Bitcoin recording an all-time high of over $69,000. The country's holdings are worth more than $147 million, a profit of over 40%.
El Salvador's president, Nayib Bukele, promoted the use of Bitcoin as legal tender, claiming that it would improve the economy by making banking easier for Salvadorans and encouraging foreign investment.
The investment has been controversial, with critics arguing that it has not brought significant benefits to the country. However, some businesses in El Salvador have reported an increase in revenue from cryptocurrency-using tourists.
President Bukele has stated that the country has no intention of selling its Bitcoin and will hold it for the long term. He continues to promote El Salvador as a cryptocurrency haven, despite criticism from economists and international organizations such as the IMF.
