What does El Salvador’s Bitcoin debut mean for the future of cryptocurrencies?

By Gaia Lamperti

On Tuesday, El Salvador made history with the official rollout of Bitcoin as the national currency, becoming the first country in the world to adopt a cryptocurrency as legal tender. The plan was implemented in only 90 days.

President Nayib Bukele announced that the government purchased 550 bitcoins (worth about $21 million) ahead of El Salvador’s formal adoption of the currency, distributed through the “Chivo Wallet,” an application created by the government to promote the use of the newly adopted currency.

The county’s President announced the government’s plans to “buy a lot more” coins making the price of Bitcoin rise after the announcements to trade at around $52,680. “The process of #Bitcoin in El Salvador has a learning curve. Every step toward the future is like this, and we will not achieve everything in a day, nor in a month,” Bukele tweeted. “But e must break the paradigms of the past.”

Yet, what has been named “Bitcoin Day” for the nation had a bumpy start. Within a few hours of the launch on Tuesday, while tens of thousands of people tried to download the Chivo app, the government had to take its e-wallet down for several hours to increase service capacity, causing Bitcoin global prices to drop sharply.

But what will the Central American country’s move mean in the race to make digital currencies mainstream?

“The people of El Salvador are now carrying the flag for crypto. Utilising a digital currency as a means to transact outside the banking system for daily activities is a watershed moment,” Matt Blom, Head of Sales Trading at EQONEX, a Nasdaq listed crypto exchange, said. “El Salvador’s place in history as the first nation to adopt a digital currency is secured, the question now is: who is next?”

Many experts in the space do agree that other nations will soon follow suit. Among them, Nigel Green, CEO and Founder of deVere Group, one of the world’s largest financial advisory, asset management, and fintech organisations, commented: “Other countries, in particular other Central and South American nations, will be watching with great interest to see if the experiment works to shore up El Salvador’s shaky economy.”

“Due to their similar reliance on remittances, amongst other factors, other nations, including Panama, Guatemala and Honduras, could also adopt Bitcoin should the process in El Salvador run smoothly and there’s greater economic growth, stability, and levels of financial inclusion as a result,” he added.

But with such a revolutionary move, inevitably, come attached major risks. “These include that there is a possibility that El Salvador could run out of dollars and that institutions, such as the IMF, might not look favourably on a nation that has adopted Bitcoin,” Green explained. The risks prompted some El Salvadorans last week to take to the streets to protest against the adoption of Bitcoin as an official currency.

However, Green highlighted 5 key reasons that support a positive outcome for President Bukele’s decision:

• A digital currency is not influenced by market conditions, nor directly from just one other country’s economy (like in the case of USD)
• Bitcoin’s supply is not only limited but also new coins are mined at a decreasing rate too, which gives El Salvador more purchasing power when buying from overseas
• Bitcoin cuts costs of remittances, a major source of income for millions of people, which would be made faster and easier compared to money transfer services or bank wires
• Additional opportunities to earn yield, meaning the size of the reserves would grow
• Significant foreign investment and capital inflows as digital asset organisations are likely to relocate to the Bitcoin-friendly nation

The deVere CEO concluded: “It’s almost universally recognised that the future of money is inevitably digital, in some form or another. We’re giving a measured welcome to the move that could make a hugely positive impact on this Central American nation and its population. This is truly a landmark moment in the evolution of digital currency.”