James and Nicki Malcolm relocated from New Zealand to El Salvador to join a bitcoin venture promoted by President Nayib Bukele in 2021, when he established the Central American country as the global pioneer in accepting cryptocurrency as a legitimate form of payment.
Several months later, Bukele outlined his vision for Bitcoin City, an innovative cryptocurrency hub that would be exempt from taxes and run on clean geothermal energy sourced from a volcano. He shared his plans with a crowd of passionate supporters during a captivating presentation at a beach club, where he even showcased a virtual representation of himself aboard a spaceship.
Bitcoin Is Actively Used as a Means of Payment
With the highly anticipated re-election of Bukele just around the corner, the development of Bitcoin City is still awaiting its commencement. However, unfazed and filled with motivation, the Malcolms, alongside 15 other individuals from different countries and a local Salvadoran couple, have successfully persuaded over 100 businesses to embrace Bitcoin as a form of payment in the picturesque coffee-making town of Berlin in eastern El Salvador.
“Adoption is of great significance to us- it’s what we consider crucial and how Bitcoin will emerge victorious,” expressed Nicki, a former mortgage advisor who is actively involved in the initiative to transform Berlin into a thriving hub for cryptocurrencies. Bukele firmly planted the flag.”
Bukele is determined to proceed with his strategy of transforming the nation into a hub for cryptocurrencies, which is potentially undermining the country’s opportunity to receive a timely financial boost from the International Monetary Fund (IMF). This decision comes despite warnings from credit agencies about the precarious state of the country’s finances.
El Salvador’s Economy Is Going through Difficult Times
In his social media posts, Bukele proudly showcases the surges in Bitcoin’s worth and promotes his infrastructure projects through videos accompanied by energetic club music. However, it is essential to acknowledge the undeniable truth: El Salvador’s economy is mainly stagnant and experiences the most sluggish economic growth in Central America. The number of people living in extreme poverty has increased twofold since 2019, while nearly half of the population is grappling with food insecurity.
“It’s not common to see individuals utilizing bitcoin,” remarked Kevin Valle, a 24-year-old vendor from El Salvador who sells produce at Berlin’s primary market. “I must mention that the price of my tomatoes and onions has skyrocketed, causing concern among individuals regarding the scarcity of jobs and inadequate wages.”
In 2022, the nation’s public debt reached an all-time high of $25 billion, marking a 30-year milestone.
Following unsuccessful initial negotiations with the IMF for a billion-dollar deal during his first term, Bukele’s government has subsequently returned to the table and, in April of last year, appointed the former Western Hemisphere director of the IMF.
The IMF has advised El Salvador to eliminate the legal tender status of bitcoin while discussing financial assistance.
However, the 42-year-old passionate individual’s determination has been strengthened by Bitcoin’s recent surge. The resurgence of the cryptocurrency has propelled El Salvador’s purported investments – the actual magnitude of which remains uncertain – into a profitable position.
An unofficial website, Nayibtracker.com, monitors El Salvador’s Bitcoin portfolio by monitoring President Bukele’s social media updates. According to the website, the portfolio’s current value is $121.6 million, resulting in a 1.5% return on the initial investment of $119.8 million.
Following a recent statement from the U.S. Securities and Exchange Commission (SEC) regarding the approval of U.S.-listed exchange-traded funds (ETFs) that monitor bitcoin, the vice president of Bukele’s administration informed Reuters that the government intends to strengthen its cryptocurrency legislation during a second term.
The Problem With El Salvador’s Economy Is Not Bitcoin but a Lack of Direct Investment
According to confident economists, the inclusion of cryptocurrency alongside the dollar in the country’s financial system is not primarily responsible for the current state of the economy. Instead, they attribute it to insufficient foreign direct investment and excessive government spending.
However, in the midst of concerns regarding state expenditure patterns and a noticeable lack of available funds, skeptics observe that Bitcoin still needs to deliver substantial advantages.
Some economists, such as Tatiana Marroquin, have raised concerns about Bukele’s choice to allocate an undisclosed sum of taxpayer funds towards a potentially precarious investment instead of utilizing them in other areas.
Vice President Felix Ulloa informed Reuters that investors’ initial doubts were starting to fade away.
With a meticulously designed media apparatus that ensures opposition is suppressed, Bukele presents himself as a leader who embodies a contemporary and economically savvy El Salvador.
However, it is his extensive efforts to combat violent criminal organizations, even if it means sacrificing certain civil liberties, that has catapulted him to unprecedented levels of popularity among the people of El Salvador.
Bukele claims to be dedicated to serving the people of El Salvador and once addressed criticisms about democracy by updating his biography on X to proclaim himself as the “World’s Coolest Dictator.”
Wallets That Are Not Full
Until now, the majority of Salvadorans have been unaware of Bitcoin. Concerns arise regarding the instability of cryptocurrency in a cash-driven economy where a significant number of individuals live paycheck to paycheck.
A survey conducted by the University of Central America’s public opinion institute revealed that a significant majority of Salvadorans, approximately 88%, did not utilize it in 2023. Only a minuscule fraction of remittances were conducted using Bitcoin.
Almost twenty people expressed little interest in comprehending the intricacies of cryptocurrency. However, their growing apprehension revolved around the scarcity of employment opportunities and the escalating expenses of housing and food.
Teamed up with successful security measures, Bukele’s adoption of Bitcoin has given El Salvador a fresh image and contributed to the growth of its tourism industry.
In Berlin, business owners claim to carry out a few Bitcoin transactions daily, primarily from tourists.
Tourism has significantly increased at Bitcoin Beach, the epicenter of cryptocurrency in El Salvador. A number of local businesses express their satisfaction with the increase, while others lament the steep rise in prices, especially for land, as foreign individuals amass beachfront properties.
Although they manage a limited amount of Bitcoin transactions, they express dissatisfaction with Chivo, the digital wallet hastily developed by the government in 2021 to facilitate the storage and transfer of Bitcoin for Salvadorans.
“The execution was lacking.” Philip Ong, a Bitcoin entrepreneur from Singapore, expressed his disappointment as certain necessary events failed to materialize. He had invested a substantial amount of $1 million to establish an office in San Salvador.
He expressed his full endorsement of Bukele’s vision for Bitcoin. However, he departed from El Salvador last year primarily due to the lack of progress and forward movement in the country.