When El Salvador President Nayib Bukele made the controversial decision to make Bitcoin legal tender in his country, many people were skeptical and concerned about the potential risks.
Bukele announced on Twitter that the country would purchase one Bitcoin (CRYPTO: BTC) each day starting Nov. 18, 2022. How is that going in 2023? The latest news out of El Salvador suggests that the government’s bet on cryptocurrency is paying off.
According to Treasury Minister Alejandro Zelaya, the government has successfully repaid one of two outstanding $800 million bonds. This move is likely to allay concerns about a potential default, which had grown amid the country’s adoption of Bitcoin.
Zalaya announced the news via Twitter on Jan. 23, highlighting the government’s commitment to meeting its debt obligations and proving the skeptics wrong. Bukele tweeted, “Well, we just paid in full 800 million dollars plus interest. But of course, almost no one is covering the story.”
The government still owes $367 million plus interest on an additional bond set to mature in January 2025, but the successful repayment of the 2023 bond is a positive sign for the country’s financial stability.
What initially started as a largely controversial might be paying off as Bitcoin and many aspects of the blockchain-based asset market have began to rebound. Gamestop Corp.’s NFT marketplace has seen a considerable boom. Some of the top NFT projects on the platform have seen volume spikes as high as 21,446%.
Similarly, leading NFT marketplace startup Gameflip recently crossed $900,000 raised from retail investors in their active equity crowdfunding raise. This comes after their announcement of hitting $160 million in lifetime volume on the platform earlier this month and a host of other milestones.
Bitcoin as Legal Tender
The small Central American country made headlines in 2021. The legislation required all businesses within the country to accept Bitcoin as a form of payment for goods and services, granting it the same status as traditional fiat currencies.
Chivo Wallet, the wallet created by the government of El Salvador, said 2.2 million Salvadorans were onboarded just one month after Bitcoin became the country’s legal tender. To encourage adoption, every user who successfully downloaded the app immediately received $30 in Bitcoin. By early 2022, about half of Salvadorans had downloaded the app.
The “Bitcoin bet” has been met with mixed reactions from international organizations and governments, with many expressing their concerns about potential risks that may arise from the use of cryptocurrency. The International Monetary Fund (IMF) recently issued a statement on El Salvador’s decision to accept Bitcoin as legal tender, cautioning against potential risks associated with such adoption.
Although there have not been any significant risks thus far following El Salvador’s adoption of Bitcoin, they noted it’s important for authorities to be vigilant when providing government exposure to digital assets. According to the statement, crypto markets are still largely speculative and unpredictable in nature and should be approached with caution for El Salvador’s economy to be safeguarded against potential losses.
The IMF also highlighted the importance of transparency when dealing with cryptocurrency transactions and emphasized that it is crucial for regulators to ensure they remain compliant with anti-money laundering laws and regulations. It advised El Salvador to develop effective regulatory frameworks aimed at mitigating financial stability risks associated with cryptocurrency use.
El Salvador appears undeterred by the IMF’s recommendations. In January, its congress approved a digital securities law, paving the way for the country to raise funds through the issuance of the world’s first sovereign blockchain bond. The law allows for the use of blockchain technology in the issuance, trading and clearing of securities, enabling greater efficiency and transparency in the process. The additional step forward for the country could potentially attract investment from tech-savvy investors looking for new opportunities in the cryptocurrency market.
El Salvadorian Prosperity in a time of uncertainty
While the U.S. market faces uncertainty around banking and a general decline in U.S. equities, El Salvador’s bet looks to be paying off. While El Salvador began buying Bitcoin at a significant premium to the current price, they also announced a purchase of 80 Bitcoin at a price around the $19,000 mark in July of 2022. They have also committed to purchasing one Bitcoin per day, every day since November of 2022. At the time, the price of Bitcoin was below $16,000. Roughly 126 days have passed since then meaning the company is still pouring millions into the digital currency despite the controversy, much of which has been at a steep discount to its current price of over $28,000.