Has El Salvador’s Bitcoin Bet Paid Off?
The success of Oxido Solutions’ Bitcoin trading bots is closely tied to market participation and liquidity —the more volume, the more capital our bots can trade with. That’s why we’re all in on anything that boosts Bitcoin adoption. El Salvador’s move in 2021, the same year Oxido Solutions kicked off its services, to make Bitcoin legal tender is a prime example. El Salvador made headlines by becoming the first country to embrace Bitcoin as an official currency, a move aimed at weaving cryptocurrency into the fabric of its economy. This groundbreaking decision rests on three key pillars:
1. Improve financial access
President Nayib Bukele saw this as a way to improve financial access in a nation where many lack traditional banking services. Only 30% have a bank account. For Salvadorans abroad, it meant a more affordable way to send money home, potentially reducing hefty remittance fees, which are a big slice of the country’s GDP.
2. Attract foreign investment
There’s more to the story. Beyond financial inclusion, El Salvador eyed economic diversification and the lure of foreign investment, positioning itself as a crypto adoption trailblazer. Bukele’s strategy also aimed to freshen up the nation’s image, painting it as a hub for tech innovation.
3. Invest in BTC from treasury
Taking a bold step, the country invested over $100 million into Bitcoin, a significant amount given its financial challenges, like a public debt hitting 90% of GDP and a poverty rate affecting over a quarter of its population.
PROGRESS HIGHLIGHTS
As we assess the situation in 2024, El Salvador’s Bitcoin strategy, particularly in terms of its treasury investments, has shown some notable successes. The country amassed 2,861 BTC, each bought at an average price of $42,599. Now, these holdings have swelled in value to over $206 million, marking an impressive 69.09% gain in their portfolio value. This success has certainly given skeptics something to think about.
At Oxido Solutions, however, our feelings are mixed about this outcome. Risk management is a cornerstone of all our investment strategies, emphasizing the importance of asset diversification. Investing so much capital into Bitcoin, especially when the country’s financial health is shaky, might seem like a risky gamble with the nation’s finances. While we’re big proponents of Bitcoin and view it as a hedge against the traditional financial system, we acknowledge that no investment is without risk, including Bitcoin.
Is Bitcoin also enhancing financial access in El Salvador? A study from José Simeón Cañas Central American University reveals promising insights: 12% of Salvadorans engaged with Bitcoin for payments in 2023, a notable achievement for a technology still in its early stages. Despite the complexities of using the Lightning Network—a system designed for swift and affordable Bitcoin transactions—the fact that a significant part of the population is actively using Bitcoin speaks volumes about its growing acceptance. The survey, involving 1,280 participants, delved into the country’s Bitcoin investment, revealing that nearly half had done one to three Bitcoin transactions, with a solid 20% engaging in ten or more. A significant portion of these transactions, notably 20.9%, were for everyday essentials like grocery shopping, indicating Bitcoin’s integration into daily Salvadoran life.
Has El Salvador also attracted foreign investments? Absolutely. El Salvador has seen significant foreign investment, notably the $250 million from international investors last year, including Tether, the top stablecoin provider. They launched Volcano Energy, focusing on renewable energy and Bitcoin mining, aiming to boost El Salvador’s energy independence and its stance in the global Bitcoin mining arena.
Three years into El Salvador’s Bitcoin initiative, the program can be largely seen as a success. President Bukele’s decisive re-election last month reflects widespread approval of his Bitcoin policy. Despite facing criticism, particularly when Bitcoin’s value fell, Bukele stood firm in his commitment to the cryptocurrency strategy. He’s demonstrated that Bitcoin can improve a nation, setting a precedent for others to follow. Oxido Solutions is all for it, as increased market participation benefits our bots.
