September 7, 2022 marks exactly one year since El Salvador became the first country in the world to adopt Bitcoin (BTC) as a legal currency by enforcing the Bitcoin Code.
By advocating for Bitcoin as legal tender last year, El Salvador President Neb Bukele promised that the adoption of Bitcoin would benefit 70% of the local population who lacked access to banking services as of 2021.
The Salvadoran government has also promoted Bitcoin as a tool to attract foreign investment, create new jobs and reduce dependence on the US dollar in the country’s economy.
One might wonder about the current real benefits of Bitcoin adoption in El Salvador as Bitcoin has lost nearly 60% of its value since the country adopted the cryptocurrency as legal tender.
Exactly on this day one year ago, BTC was trading at around $46,000, according to data from CoinGecko. On September 6, 2021, the Salvadoran government made its first purchase of Bitcoin, buying 200 Bitcoin at a price of $10.36 million, or an average price of $51,800. This is in stark contrast to current BTC prices, as Bitcoin plunged below $19,000 on Tuesday. At the time of writing, Bitcoin was trading at $18,806, down more than 64% over the past year.
Bitcoin price chart for one year. Source: CoinGecko
According to data from the Nayib Bukele wallet tracker, El Salvador is now declining in all 10 Bitcoin purchases the government has made since BTC was adopted as legal tender. The Salvadoran government has purchased a total of 2,381 BTC so far, which is worth $62 million less than the price El Salvador has paid for its current BTC holdings.
El Salvador’s Finance Minister Alejandro Zelaya previously confirmed that despite the price drop, the country did not incur any losses on its BTC purchases because it did not sell the coins. The Salvadoran government has also repeatedly postponed the bitcoin bond project, citing unfavorable market conditions and geopolitical issues.
Amidst the slump in cryptocurrency prices and an ongoing bear market, some industry watchers are beginning to refer to El Salvador’s adoption of bitcoin as a “failed bitcoin experiment.” Others noted that this may not be the case because the country appears to have had some positive impact on El Salvador’s economy and financial market, including transaction costs.
Bram Cohen, BitTorrent creator and founder of Chia Network, took to Twitter on Tuesday to point out that the amount of benefits often “doesn’t closely correlate with the amount of money you make.” He noted that some banks had to cut interest rates due to the emergence of cheaper Bitcoin transactions in El Salvador.
According to the Central Reserve Bank of El Salvador, Salvadorans living abroad sent more than $50 million in remittances from January to May 2022. The adoption of Bitcoin and the El Salvadorian government-backed Chivo wallet also contributed to a 400% increase in Lightning Network transactions in 2022.
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“El Salvador is going to be a ground to prove a lot of innovation inside Bitcoin,” said Jose Lemos, CEO of Ibex Mercado. He noted that no other jurisdiction combines “a regulatory framework, political will, adoption of a set of tools, and most of all, the need for Bitcoin.” he added:
“This makes El Salvador the perfect place to safely experiment with new Lightning applications and create a thriving ecosystem of trusted, proven, and interconnected services.”
The Bitcoin law in El Salvador has also succeeded in terms of attracting foreign investment and tourism. As previously reported by Cointelegraph, tourism in El Salvador surged in the first half of 2022, jumping about 82% as 1.1 million tourists flocked to the country this year.