Bitcoin play El Salvador: What does the current slump mean for adoption?

Bitcoin play El Salvador: What does the current slump mean for adoption? – Mail Bonus

It was September 6, 2021, when the Central American nation of El Salvador decided to go ahead and buy 200 Bitcoin (BTC), worth about $ 10.3 million at that time. The day was celebrated as important in the history of the cryptocurrency market and was well received. In fact, many advocates have argued that the acquisition is merely an indication of what really lies ahead in terms of a global cryptocurrency-driven economy.

However, much has changed since then, especially as BTC lost 55% of its value after rising to a historic high of $ 69,000 in November. And as the value of Bitcoin seems to be declining at the moment, many critics have stepped up their criticism of El Salvadora President Nayib Bukele and his decision to continue collecting more BTC.

At this time, the country’s treasury now contains a total of 2,301 BTC, which is estimated to be worth over 67 million US dollars at current prices. In fact, reports suggest that Bukele’s gambling on Bitcoin already appears to have led to huge losses equivalent to the country’s expected interest payments.

El Salvador Financial Statements

Estimates suggest that the continued decline in cryptocurrencies, which has caused Bitcoin to lose about 40% of its value since the end of March, has deepened El Salvador’s accumulated losses and its cryptocurrency holdings to about $ 40 million, almost equal to the country’s next down payment. at $ 38.25 million due in mid-June.

It should be noted that since September 2021, Bukele and his team have poured in as much as 105 million dollars to buy Bitcoin. However, the flagship cryptocurrency has fallen by 45% since the country’s first acquisition, reducing the value of the nation’s BTC transit to just $ 66 million.

As of press time, El Salvador owes the accumulated bondholders a total of $ 382 million in interest, to be paid out by the end of this year. To date, in July alone, the country has a payment of 183 million US dollars due.

El Salvador is said to have $ 3.4 billion in its reserve fund in April, with Bukele and his team planning to raise an additional $ 1 billion using highly-advertised Bitcoin-backed bonds. However, the sale of the auction has been postponed many times in the past year due to apparent lack of interest.

Finally, it should be noted that since early 2021, El Salvador has been trying to lock in a $ 1.3 billion loan from the International Monetary Fund, an effort that seems to have lost steam in the wake of the country’s fierce BTC adoption campaign. Apart from that, the country needs to strengthen its finances as the IMF believes that under its current policy, El Salvador’s public debt will rise to 96% of GDP within the next 48 months, setting the country on a “no return” path.

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Experts weigh in on El Salvador’s cryptocurrency “experiment”

The Cointelegraph asked Ben Caselin, head of research and policy at the AAX cryptocurrency exchange, for his opinion on whether El Salvador’s attempt to invest more money in cryptocurrency had been successful. He pointed out that the issue should not be looked at too deeply as today’s Bitcoin fluctuations are not too different from what they were last year, adding:

“Regardless of market conditions, El Salvador can still benefit from payments made on the Lightning Network, which are cheaper than traditional money companies such as Western Union and MoneyGram. The legal game also continues to make it easier for El Salvador to attract foreign investment and it continues to provide useful infrastructure for non-bank communities.

From a purely price point of view, Caselin believes that it is important to provide investors with sufficient context now that each country is facing some kind of economic pressure. Not only that, but most capital markets, including the NYSE, Nasdaq and Dow, have also been lagging behind in recent times. “At this early stage, it is too early to say whether it was too early for El Salvador to keep Bitcoin in its foreign exchange reserves,” he said.

A somewhat similar view was echoed by Antoni Trenchev, co-founder and CEO of Nexo’s cryptocurrency platform. He told the Cointelegraph that short-term fluctuations were nothing new in the cryptocurrency market and was probably taken into account by the El Salvador government when they decided to proceed with the purchase, adding:

“Yes, El Salvador is in an unknown sea area, but it is far too early for serious doubts, there is much more potential to be revealed in this system and it seems that the Bukele regime has the right idea, namely to continue sailing so others can learn and enjoy benefit from this experience. “

Lior Yaffe, co-founder of blockchain software development firm Jelurida, told the Cointelegraph that in 2001, the El Salvadoran government relinquished control of its monetary policy by legalizing the US dollar, thus effectively setting the country’s monetary policy. hands of the US Federal Reserve. Yaffe added:

“The transition to Bitcoin has been a strategic step to position El Salvador as a local technology hub and lift it out of poverty. As such, it should be seen as a long-term game and should not be judged on short-term price fluctuations. “

More fear

Speaking of Bitcoin’s volatility in recent weeks, it’s worth delving into the question of whether El Salvador’s aforementioned losses could deter other countries from adopting cryptocurrencies as legal tender in the future. Trenchev believes that with the right mindset, every country can benefit from one of the key features of Bitcoin: being a value store in the face of high inflation.

He added that although the current bear market is bad, its effects can be seen in a number of sectors, including stocks, mutual funds, commodities and indices – not just cryptocurrencies.

Not only that, in his view, the adoption of BTC is not just a profit measure but rather an acceptance of the underlying features of the digital currency.

Bitcoin ATM in El Zonte. Source: Karlalhdz

“El Salvador’s example is an indication that market turmoil is, for the time being, not delaying the introduction of BTC as a legal tender. “Rather, it’s a stress test, and if El Salvador gets through, it could be a cryptocurrency that is in its heyday,” Trenchev said.

Adam Boalt, CEO of EarthFundDAO – a distributed crowdfunding platform – told the Cointelegraph that despite the recent dip and bad pressure, we are on the verge of mass capture. In his opinion, once the use of cryptocurrencies has improved beyond the improved version of the fiat, we will continue to see widespread recordings and look back on El Salvador as “ahead of the curve”.

Jessie Chan, Human Resources Manager at ParallelChain Lab – the company behind ParallelChain’s public / private blockchain ecosystem – believes that at this point, Bitcoin has become an unstoppable force that no country can afford to ignore, adding:

“El Salvador has shown us what life can be like with mass encryption. Buying a cup of coffee, paying your phone bill, it’s from the most trivial events that we discover a real transformation. “

Chris Trew, CEO of the blockchain-as-a-service platform Stratis, gave a comprehensive overview of the case, telling the Cointelegraph that in the long run, El Salvador’s move to acquire more BTC will benefit those countries that want to legalize the property as adoption has grown significantly. in the last 10 years. “Bitcoin has previously experienced a bear market but not an international recession that could be imminent. Bear markets are where products are made. “

Bitcoin seems to be growing

Yaffe believes that every party that supports the adoption of Bitcoin – whether it is a national government or an institutional player – has already included price fluctuations in the decision-making process. And while the decline in Bitcoin prices is not encouraging in the short term, he is confident that in the big picture, decentralized currency offers great benefits for small and poor countries that may be struggling to support local fiat their.

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Similarly, in Chan’s view, the willingness to accept Bitcoin as a legal tender must accelerate regardless of the bear market. He pointed out that the increasingly centralized and political global financial situation has left people, especially those living in smaller economies, with no choice in the face of losing their autonomy.

Last week, El Salvador hosted a number of central bankers and financial authorities from 44 countries in an effort to educate them about Bitcoin and crypto / blockchain technology in general. To highlight the power of digital currencies, each participant was given a wallet containing BTC and shown how to use them to facilitate a wide range of daily purchases.

It will be interesting to see how things develop for Bitcoin from now on, especially as inflation rises around the world and most analysts predict a bleak future for the world economy. In that regard, if Bitcoin is really capable of turning into an inflation hedge, as many have anticipated, more and more countries could seek to take up the asset in the near to medium term.