James and Nicki Malcolm relocated to El Salvador from New Zealand after being enticed by President Nayib Bukele’s vision for a bitcoin utopia in 2021, when he declared the Central American nation the first in the world to accept cryptocurrency as legal tender.
Several months later, Bukele unveiled his plans for Bitcoin City, a tax-free crypto haven fueled by geothermal energy from a volcano, during a presentation at a beach club to a crowd of enthusiasts, which included an avatar of himself on a spaceship.
Despite the fact that ground has yet to be broken on Bitcoin City, the Malcolms, along with 15 other foreigners and a Salvadoran couple, have rallied more than 100 businesses in the coffee-producing mountain town of Berlin in eastern El Salvador to accept bitcoin.
Nicki, a former mortgage advisor, stated, “Adoption is huge for us – it’s what we feel is important and how bitcoin will win. Bukele put the flag in the ground.”
Bukele is unwavering in his efforts to transform the country into a cryptocurrency haven, which has jeopardized El Salvador’s chance of swiftly receiving financial assistance from the International Monetary Fund (IMF) as credit agencies warn that state funds are dangerously low.
Despite Bukele’s online boasting about Bitcoin’s value surges and infrastructure plans, the truth remains that El Salvador’s economy is largely stagnant, with the slowest growth in Central America, and nearly half the population suffering from food insecurity, with extreme poverty doubling since 2019.
Salvadoran produce vendor Kevin Valle noted that the cost of his tomatoes and onions has doubled, while concerns about low employment and salaries are on the rise.
Furthermore, the country’s public debt reached a 30-year high of $25 billion in 2022, signifying significant financial strain.
Following the collapse of initial talks with the IMF for a billion-dollar agreement during his first term, Bukele’s government has attempted to restart negotiations and even recruited the IMF’s former Western Hemisphere director last April.
The IMF has advised El Salvador to remove bitcoin’s legal tender status during financial support negotiations.
“Nayibtracker.com,” an unofficial website monitoring El Salvador’s bitcoin holdings based on Bukele’s social media, claims it has reached $121.6 million on an initial $119.8 million investment, yielding a 1.5% return.
In light of the recent Securities and Exchange Commission (SEC) announcement permitting U.S.-listed exchange-traded funds (ETFs) that track bitcoin, Bukele’s vice president stated that the government will reinforce its crypto law in a second term.
Some economists argue that the country’s adoption of cryptocurrency, alongside the dollar, is not the main driver of the economy’s overall state, pointing instead to low foreign direct investment and government overspending.
However, doubts regarding state spending habits and a clear liquidity issue persist, with critics suggesting that bitcoin has not yielded significant benefits.
Economist Tatiana Marroquin questioned Bukele’s decision to risk an unspecified sum of taxpayer dollars on a volatile investment.
Vice President Felix Ulloa claimed that initial investor skepticism was subsiding.
Through a well-honed media mechanism that suppresses dissent, Bukele projects the image of a more modern, economically savvy El Salvador, although his massive crackdown on violent criminal gangs, at the expense of civil liberties, has earned him overwhelming popularity with Salvadorans.
To date, a large percentage of Salvadorans remain indifferent to bitcoin, expressing concern about the cryptocurrency’s volatility in a cash-based economy where many live hand-to-mouth. According to a survey by the University of Central America’s public opinion institute, 88% of Salvadorans did not use bitcoin in 2023, and only 1% of remittances were sent in bitcoin.
Despite concerns about the lack of jobs and rising housing and food costs, Bukele’s bitcoin initiative, coupled with security successes, has rebranded El Salvador and helped boost tourism.
In Berlin, business owners report conducting a small number of bitcoin transactions daily, mainly from tourists. At Bitcoin Beach, the epicenter of crypto in El Salvador, tourism has grown, although surging prices, especially for land as foreigners acquire beachfront property, have concerned several local businesses.
While a limited number of bitcoin transactions are processed, business owners have encountered difficulties with Chivo, the digital wallet established by the government in 2021 for Salvadorans to hold and send bitcoin.
Philip Ong, a Singaporean Bitcoin entrepreneur who invested $1 million to establish a San Salvador office, stated that he “strongly supports” Bukele’s bitcoin vision. Nevertheless, he departed El Salvador last year, citing a lack of momentum as a major factor.
(Reporting by Sarah Kinosian and Nelson Renteria; Additional reporting by Rodrigo Campos and Diego Ore; editing by Christian Plumb and Claudia Parsons)
