- Bitcoin’s impact on El Salvador will take time.
- With USD and Bitcoin in competition as legal tender, the latter is sure to win out.
- El Salvador should pursue even more aggressive Bitcoin policies.
El Salvador’s Bitcoin history had an ominous beginning. In March 2022, less than a year after President Nayib Bukele announced the Bitcoin legal tender law, gang violence erupted, resulting in 87 murders in a single weekend.
One victim, a local surf instructor with no known gang affiliations, was found with hands and feet bound on the highway to the Bitcoin Beach. He had been shot in the head. It was a message about Bukele’s vision of the future.
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Bukele declared an emergency, suspended the constitution, and incarcerated the country’s gangs. Bukele’s El Salvador has since become the safest country in Latin America.
Bukele Not Taking His Orange Pills
Bukele does not, however, view his Bitcoin experiment as much as a resounding success as his security efforts, telling TIME that Bitcoin “has not had the widespread adoption we hoped.”
He still calls Bitcoin adoption a “net positive,” and acknowledges that risks about which the IMF warned have not come to fruition. Yet, he portrays Bitcoin adoption as mostly part of a marketing campaign.
“It gave us branding, it brought us investments, it brought us tourism,” he said. “I do believe that the positive outcomes outweigh the negative, and the issues that have been highlighted are relatively minor.”
He adds: “I’m not going to say it’s the currency of the future, but there’s a lot of future in that currency.”
It’s not only Bukele who says Bitcoin adoption was a PR stunt. “We call it the Great Rebranding. It was genius,” says Damian Merlo, a Miami-based lobbyist. “We could have paid millions to a PR firm to rebrand El Salvador. Instead, we just adopted Bitcoin.”
Whether or not Bukele unwittingly or wittingly introduced a Trojan horse into the global monetary system is irrelevant.
Perhaps Bukele has not fully wrapped his head around the mathematics behind Bitcoin nor the historical implications of his decision, as a head of state, to adopt stateless money—with no need for a central bank—into a world made dependent on central banking over the centuries.
Peaceful Revolutions Take Time
The revolutionary transformation now underway thanks in part to El Salvador’s Bitcoin law will take time to play out.
In general, when a country switches from an old currency to new currency it is out of necessity. There might be, for example, a hyperinflationary event forcing the government to introduce a new currency.
The hyperinflation creates an incentive to exit the rapidly depreciating currency into the new currency. At present, the US Dollar, which El Salvador has used as its national currency since 2001, does not face the crisis-level hyperinflation needed for Salvadorans to radically depart from fiat to Bitcoin.
Furthermore, Salvadorans have spent decades under the thumb of central banking. The country’s central bank was established in 1934 and was at first a private entity until it was nationalized.
Switching from a fiat currency like the dollar to Bitcoin is the equivalent of a blood transfusion for the entire society. Patience is a virtue in such a context.
Bukele Should Double Down On Bitcoin
El Salvador is still among the poorest in the western atmosphere. Foreign investors and creditors are not always happy with his policies.
“Bukele has built a house of cards, because it’s an incredibly expensive security policy,” says Christine Wade, an El Salvador expert at Washington College in Maryland. “It’s not financially sustainable, and his future will depend on his ability to address that.”
A quarter of the country remains impoverished, with remittances from abroad equating to 20% of GDP. Whether or not the IMF will grant El Salvador access to international markets to finance its debt in the wake of the Bitcoin law, and questions over his administration’s fiscal transparency, remains to be seen. Luckily, Bukele has already adopted the solution to these complaints.
Van Eck, one of the world’s largest asset managers, conjectured that Bitcoin could reach $52 million dollars per coin. Michael Saylor, CEO of MicroStrategy, foresees Bitcoin potentially reaching $49 million by 2045. They are not the only ones to make seven and eight figure Bitcoin price predictions.
Does Bukele understand the implications for El Salvador if Bitcoin achieves even a fraction of such price gains?
Unless his blasé attitude towards Bitcoin adoption is a game of 4D chess, it appears that no, Bukele does not know what he has done. No other country has the awareness about Bitcoin as Salvadorans—it is the number one country for “Bitcoin” search volume on Google Trends.
Therefore, no other country is as prepared for de-dollarization and the future as El Salvador, except maybe Bhutan, which was revealed to hold more Bitcoin than El Salvador. The Buddhist nation in between China and India, however, has not implemented a legal tender law.
But, the extent of Bukele’s revolution doesn’t end there. In a fiat currency regime, central banks print ad nauseam and the war never stops. When countries follow Bukele’s lead and adopt Bitcoin, there will be no printer. The fiat-addicted war machine will seize up. An era of peace and prosperity will fall upon any country which followed El Salvador’s lead.
Bukele will have avenged the surf instructor slain on the road to Bitcoin Beach.
“Everything in life has a cost,” Bukele likes to say.
The cost of bringing peace to humanity might just be a little bit of patience.
