Surge in Bitcoin Economy Following Presidential Re-elections in El Salvador
El Salvador’s Bitcoin economy has been a topic of significant interest since the country adopted Bitcoin as legal tender in 2021. The recent re-election of President Nayib Bukele on February 4, 2024, has implications for the continued integration of Bitcoin into the Salvadoran economy. Bukele’s administration has been purchasing Bitcoin since 2021 and has spent about $85.5 million on the cryptocurrency between September 2021 and January 2022. Despite the government’s commitment to Bitcoin, most Salvadorans have not embraced the cryptocurrency, with 88% not using it in 2023 and only 1% of remittances being sent in Bitcoin.
Bukele’s re-election is expected to ensure that El Salvador remains committed to Bitcoin as legal tender. His vice president, Felix Ulloa, confirmed that Bitcoin would remain legal tender during Bukele’s second term. This commitment comes despite the International Monetary Fund’s (IMF) advice to reconsider the use of Bitcoin due to the risks associated with its volatility.
The re-election of Bukele, who has been described as the “world’s coolest dictator,” was anticipated to be a landslide victory. His administration has been credited with reducing gang violence significantly, which has increased his popularity among Salvadorans. However, there are concerns about the erosion of civil liberties and the slow economic growth during his tenure.
The impact of Bukele’s re-election on the Bitcoin economy in El Salvador is twofold. On one hand, it ensures political stability and continuity in the country’s Bitcoin policy, which could foster further investment and development in the cryptocurrency sector. On the other hand, the Salvadoran economy’s reliance on Bitcoin remains controversial due to the cryptocurrency’s volatility and the country’s economic challenges.
Despite the International Monetary Fund’s (IMF) advice to reconsider the use of Bitcoin due to its volatility, the Salvadoran government has no intention of reversing its decision. The re-election of Bukele, therefore, ensures political stability and continuity in the country’s Bitcoin policy, which could foster further investment and development in the cryptocurrency sector.
Bukele announced plans for a “Bitcoin City” at the base of the Conchagua volcano. The city is envisioned to be powered by geothermal energy from the volcano, which will also be used to mine Bitcoin. The city is proposed to be a tax-free zone, with the exception of value-added tax (VAT).
Known as “Volcano Bonds,” these are intended to raise $1 billion, backed by Bitcoin, to fund the construction of Bitcoin City and to establish a Bitcoin mining industry powered by geothermal energy. The bonds received regulatory approval in December 2023 and are expected to launch in the first quarter of 2024.
In summary, President Nayib Bukele’s re-election is expected to boost the Bitcoin economy in El Salvador by maintaining the cryptocurrency as legal tender and potentially attracting more investment and tourism related to Bitcoin. However, the overall success of this initiative will depend on the government’s ability to address the economic and social challenges facing the country, as well as the volatility and adoption issues associated with Bitcoin.
Angel Marinov is the Managing Editor at Coinlabz. With extensive knowledge of crypto payments and blockchain use cases, Angel is a trusted source of accurate and timely information