El Salvador rocked the crypto world when it became the first country to embrace bitcoin as legal tender. It even promised to mine the cryptocurrency with a volcano’s geothermal energy.
But the bold move hasn’t exactly been a rousing success. According to the National Bureau of Economic Research report, despite a robust government push, including free transactions, a sign-up bonus, and gasoline discounts, bitcoin’s Salvadoran debut has been mostly underwhelming.
El Salvador was supposed to blaze the trail. With its “Bitcoin Law,” El Salvador embarked on its grand experiment in September 2021, unveiling incentives to convince its citizens to embrace cryptocurrency.
The government of President Nayib Bukele gave citizens who downloaded the Chivo Wallet app, El Salvador’s official bitcoin and dollar wallet, a $30 sign-up bonus, “a significant amount in this Central American country with a per capita GDP of $4,131,” according to the NBER report. The study was based on interviews with 1,800 households.
Fees were waived for transactions in bitcoin and conversions from bitcoin to dollars through the Chivo Wallet and cash withdrawals at Chivo ATMs. Other bitcoin ATM fees in the country range from 5% to more than 20%, the report said.
Using bitcoin also means cheaper gasoline for Salvadorans. Bukele announced a $0.20/gallon discount that he later boosted to $0.30/gallon, the report said.
How cool is Chivo? Chivo is slang for “cool,” but El Salvador’s bitcoin wallet hasn’t achieved anything close to meme status.
The report cited official data that more than two-thirds of the population had downloaded the Chivo app in January 2022. But it appears that many Salvadorans did so mainly because of the $30 bonus, the report said.
Less than half of those who downloaded Chivo continued to use it after spending the 30 bucks. The report said a company involved in the development of Chivo reported “only 6-15 thousand transactions per day in the app,” a small number relative to El Salvador’s adult population of about 4.3 million people.
Why aren’t Salvadorans using bitcoin? Most “do not understand it, they do not trust it, businesses do not accept it, it is very volatile, and [outside the Chivo ecosystem] it involves high fees,” the report said.
Bitcoin isn’t making it beyond the beach quite yet. El Salvador became famous for El Zonte, better known as “Bitcoin Beach,” where people use bitcoin to buy pretty much anything. Stacy Herbert, a partner at El Zonte Capital, said bitcoin is just getting started in El Salvador.
The country’s bitcoin adoption numbers “seem extraordinarily high to me if one considers that just eight months ago it was near zero,” she told Protocol. “That is a success story in my book.”
But Hilary Goodfriend, a graduate student at the Universidad Nacional Autónoma de México who writes about El Salvador, said the country’s bitcoin policies are “largely targeted at attracting foreign investment through fiscal and regulatory incentives.” “Bukele tweets regularly about bitcoin in English to an audience of crypto enthusiasts and potential investors,” she told Protocol.
But wooing international investors and financiers has become more challenging, partly because of Bukele’s bitcoin policies. His government’s plan to sell a $1 billion bitcoin-backed bond has flopped. The IMF, World Bank, and the Bank of England have warned about financial instability in El Salvador.
Maybe Bukele’s bitcoin push is just about branding, a national marketing stunt. Bukele has recently come under fire for a gang crackdown that has led to “serious human rights violations.” Goodfriend argued that “bitcoinization” in El Salvador is “a branding exercise aimed at attracting foreign investment as the country’s credit rating tank and the international community recoils at Bukele’s authoritarianism.” Bitcoin isn’t worth much in a broken economy. — Benjamin Pimentel (email | twitter)