Three years have passed, and while betting on Bitcoin has not led to an economic breakthrough for El Salvador, the predicted collapse has not occurred either.
It has been three years since El Salvador made Bitcoin an official currency alongside the US dollar. This historic move has garnered close attention from both the crypto community and proponents of traditional financial systems. In this article, we will examine how El Salvador legalized Bitcoin, whether this initiative has been successful, and how it has impacted the country’s economy.
Bitcoin Legalization in El Salvador: How It Happened
On September 7, 2021, El Salvador became the first country to officially recognize Bitcoin as a national currency. The initiative came from President Nayib Bukele, who saw cryptocurrency as a tool to strengthen the economy. As part of this program, steps were taken to popularize Bitcoin among the population: distributing BTC through the national Chivo wallet, installing crypto ATMs, and establishing Bitcoin embassies.
In addition, the government began actively purchasing Bitcoin. As of this writing, El Salvador holds 5,748 BTC, worth over $314 million. Despite the fact that since Bitcoin’s legalization its value has increased by only 11%, the country has managed to secure significant profits by buying the cryptocurrency during its lows, such as after the collapse of FTX in November 2022.
President Bukele, recently re-elected for a new term, continues to promote cryptocurrency initiatives, despite skeptical forecasts about a potential national crisis. In May 2024, El Salvador launched a mempool to track national investments in Bitcoin, emphasizing the country’s long-term commitment to cryptocurrencies.
Are People in El Salvador Actually Using Bitcoin?
Despite the government’s efforts, actual Bitcoin usage among the population remains low. In 2023, cryptocurrency transactions accounted for only 1.3% of total transfers. Moreover, research shows that the number of cryptocurrency users in El Salvador halved compared to the previous year.
However, there are many testimonies online showing that Bitcoin is finding use in the country. Bloggers report that it is possible to survive using only Bitcoin, purchasing goods through the Lightning Network in supermarkets. Nevertheless, even Bitcoin supporters admit that only about 5% of the population actively uses cryptocurrency.
El Salvador’s Economy: The Impact of Bitcoin
El Salvador’s economic indicators over the three years since Bitcoin’s legalization have shown mixed results. The country’s GDP in 2023 remained below the 2021 level but higher than the 2022 figures. Unemployment fell from 7.2% in 2021 to 5% in 2022 and 2023, which is a positive sign for the economy.
However, the key interest rate increased from 4% in 2021 to nearly 6% in 2024, reflecting efforts to curb inflation. Despite these challenges, there has been noticeable growth in the tourism sector. El Salvador is increasingly featured in rankings of popular travel destinations, a trend supported by the government’s cryptocurrency initiatives.
Conclusion
Three years have passed, and while betting on Bitcoin has not led to an economic breakthrough for El Salvador, the predicted collapse has not occurred either. Time will tell if this decision proves to be strategically sound for the country’s long-term economic development.
