El Salvador - One year of Bitcoin
Bukele's personal promotion of Bitcoin should be a lesson to the rest of the region as how not to manage and regulate cryptocurrency.
In September 2021, El Salvador became the first country in the world to make Bitcoin a legal and official currency of the country. At that time, I wrote a post titled El Salvador - Three scenarios for Bitcoin.
One year later, the country is somewhere between the bad and neutral scenario and almost certainly closer to the bad scenario if you have to choose between the two. Adoption among the average population is very low and the president’s management of the country’s holdings has lost money. Tim Muth has a good roundup of the current situation and I’m not going to repeat anything he wrote, so go read his post.
In one way, the current situation in El Salvador isn’t totally Bukele’s fault. If Bitcoin had doubled in price over the past 12 months, El Salvador’s president would have a much better grasp of the situation and adoption by average citizens would likely have increased rather than died on the vine. The crash in cryptocurrency prices over the past year is well outside of Bukele’s control. And yet, it is Bukele’s fault that he didn’t prepare for it and built his plans based on the idea that the price would only go up.
That adds to one key reason that El Salvador is in a bad scenario: it’s an expectations game. El Salvador hasn’t made Bitcoin a legal currency option as part of a long-term and careful macroeconomic strategy. Instead, the president has promised a cryptocurrency revolution and has made it a key part of his international identity. Bukele’s identity is not the country’s. And as that high-profile experiment failed, the president’s judgment has rightfully been called into question by many analysts internationally and his critics domestically.
El Salvador is the only country where the president is using his high-profile Twitter persona to act like a late night infomercial salesman while pushing Bitcoin. His profile had laser eyes. He’s brought a bunch of the worst cryptocurrency con-artists to the country to engage in scams. In addition, as I wrote a few months ago, Bukele has in some ways institutionalized corruption through his management of the country’s Bitcoin purchases and holdings, “gambling the country’s resources while facing no checks on his authority to do so.”
It doesn’t have to be this way. There are plenty of countries in the region experimenting with cryptocurrencies. Some are carefully engaging in regulations while others are more Wild West. Brazil’s Central Bank is probably the best example of smart regulation, issuing careful regulations on cryptocurrency companies that still allow for innovation, deploying the Pix money transfer system that in some ways competes with crypto in a way that protects consumers, and pushing ahead on a potential Central Bank Digital Currency. Perhaps most importantly, Bolsonaro has nothing to do with it. He has barely ever mentioned cryptocurrency and the policies right now will likely continue under Lula or other governments in the future. Something similar could be said about Colombia and, to a lesser extent, Mexico.
The difference between serious regulation and populism is why El Salvador’s experience with Bitcoin so far should serve as a warning. What I wrote a year ago remains true:
Bitcoin in El Salvador won’t succeed because of Nayib Bukele. In fact, he is the biggest risk to the issue. Benefits for the most Salvadorans won’t come until the Bitcoin project is separated from the president’s personal and political agendas.
Bukele’s authoritarianism is deepening and doesn’t appear to be going away any time soon. He remains popular in the country, though Bitcoin has nothing to do with that. The most likely scenario is that El Salvador’s Bitcoin experiment remains a negative one for as long as Bukele is in office and managing it.