El Salvador’s President Seeks Re-Election: Bitcoin Adoption Year 1 Report Sheet Shows Ambiguous Findings

It has been exactly a year and two weeks since El Salvador’s national leader, Nayib Bukele, announced that the country would adopt bitcoin as legal tender, resulting in it becoming the world’s first and so far only. The decision drew mixed comments from crypto industry influential figures and was also censored by other governments and financial institutions, including the International Monetary Fund.

It wasn’t smooth sailing

The breadth of promises and expectations surrounding a legal bitcoin tender was extensive. Some Salvadorans were receptive to this novel idea as it would free them from US dollar “captivity”. In contrast, others showed a lack of trust and understanding of the flagship cryptocurrency. These contrasting feelings still haunt the Central American nation today.

Josué López, a Switzerland-based Salvadoran who owns an investment fund, announced in June this year his intention to invest $200 million in renewable energy generation. The idea was that the electricity generated from the photovoltaic array would be used to power the national grid and mine Bitcoin. Residents of Nueva Concepcion, the community where the power generation project will be located, have raised specific environmental concerns about the potential impact of the project.

They’re worried because the project will require 74 acres to be cleared, according to the Intercommunal Association of Water and Sanitation of Nueva Concepcion. Additionally, mining Bitcoin will potentially require vast amounts of water to cool the facilities. This will affect the locals as they are mostly subsistence farmers. There is still a disruption over Bitcoin in the Latin American nation.

A red crypto market hurts the BTC initiative

In order to achieve economic autonomy, President Bukele initiated efforts to initiate decoupling from the dollar with the Bitcoin decision. A year later, the hunt for the dollar has not stopped. The idea of ​​Bitcoin as a hedge against inflation has been debunked, at least for now, as the satoshi coin has also suffered alongside a gloomy stock market.

Bitcoin YTD trading chart

Bitcoin (BTC) price action over the past 12 months proves this as the asset has lost a significant portion of its value. A portfolio tracker of El Salvador holdings at the time of writing showed a value return of -57.12% over the period.

El Salvador BTC portfolio tracker

All purchases of bitcoin the country has completed since September 2021 have lost value, except for the 80 BTC it added in July – up 1.49%. President Nayib Bukele’s dollar cost-averaging strategy worked conveniently to give El Salvador access to crypto. The underlying flaw is that most bitcoin was bought at peak prices without anticipating the current 72% drop from all-time highs.

To learn more about Bitcoin, read our Investing in Bitcoin guide.

Concerns about the opacity of El Salvador’s Bitcoin

President Bukele has received all sorts of criticism over the past year, but the Bitcoin proponent keeps a cool head. Adoption is the biggest problem there is. Although the government tried to persuade citizens to use Chivo, the official bitcoin and dollar wallet, its usefulness did not diminish. Locals just didn’t put their money into the idea of ​​bitcoin, even though the law allowed its use for paying taxes and processing payments.

Aside from Salvadorans’ lack of enthusiasm for Bitcoin, there are concerns about opaque government management of their crypto. The Central American Institute for Fiscal Studies has called for bitcoin to be dropped as legal tender, arguing that adoption has brought no tangible benefits.

President Bukele shuts out the negativity. Despite widespread questioning of the Bitcoin decision, he remains positive. He recently suggested he’ll soon be coining an op-ed urging the community to “stop drinking elite Kool-Aid.” Bukele has only spread optimism about the initiative. He retweeted a post by Bitfinex Chief Technology Officer Paolo Ardoino, who believes in El Salvador’s Bitcoin stance. Ardoino sees the Salvadorans as brave in defining their own path of freedom with Bitcoin.

Negative aspects aside, tourism and financial access have increased

With all things that observers can say went wrong, there are some positives. Alejandro Zelaya, the country’s finance minister, notes that bitcoin has increased access to financial services for a large segment of the unbanked population and encouraged international investment.

Central Bank Says Country’s Crypto Attractiveness Has Increased Significantly; There are currently 59 crypto and blockchain companies in the country. In April, El Salvador’s tourism minister, Morena Valdez, noted that the tourism industry had grown by 30% and was on track to break pre-pandemic levels. She attributed this in part to the use of bitcoin as legal tender.

El Salvador, Bitfinex and the Volcano Token Debt Offering

A great expectation of a bitcoin legal tender was the promise of a bitcoin city. The project was due to come to fruition in March via a public launch of the debt offering, but the city has yet to get started due to roadblocks. El Salvador has attributed the delays to the ongoing war in Ukraine, slowing risk appetite, shifting laws and underwhelming bitcoin prices.

Bitfinex’s Paolo Ardoino, who is set to list the Volcano token, has indicated that approval of the digital securities law to launch the offering could come before the end of the year, provided El Salvador has the necessary stability to pass it.

Second-term bidders are constitutionally prohibited

Bukele, who took office as president in June 2019, was the biggest advocate of El Salvador’s bitcoin policy. With his term ending in 2024, there have been concerns about the continuity of the project. On the occasion of El Salvador’s 201st Independence Day last Thursday, Bukele announced in his livestreamed speech that he would seek another term as a candidate in the next elections.

While some greeted his announcement with enthusiasm, his critics hailed his ambitions as unconstitutional. The accusation is based on the fact that El Salvador’s constitution does not expressly provide for consecutive terms of office for the president. Last year, the country’s Supreme Court controversially ruled that presidents can seek a second term. The verdict was condemned by many, including the US State Department. The re-election, which legal experts say would violate more than four articles of the constitution, is perceived as a display of undemocratic rule and dictatorship.

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