Back in 2021 while Bitcoin faced huge criticisms from numerous countries and regulators, suffered extreme fluctuations in its price, got banned in different countries, there was one country in the whole wide world that opened its arms wide open for the crypto. While many may think that those arms may have been spread a little too wide, this country says accepting Bitcoin may be the biggest and best bet yet in a project.
Led by Nayib Bukele, El Salvador went as far as adopting Bitcoin as a legal tender in September amid huge criticisms from international and financial bodies. Described as a currency based on thin air by some, Bitcoin is believed to be a sham and a country should not even think of adopting it as a legal tender. The World Bank spoke out against the move by El Salvador describing it as an unwise decision seeing that Bitcoin relies on nothing and is highly volatile. Some analysts also described it as an “attention-seeking move” from an “authoritative regime”. The International Monetary Fund (IMF) said the adoption of Bitcoin, which it sees as a volatile currency, was going over the edge and a decision that a country should not even think of embarking on.
The International Monetary Fund (IMF) is another international body that was infuriated after El Salvador announced its adoption of Bitcoin as a legal tender. The body didn’t hold back on its opinions on the move.
A Tuesday statement by the International Monetary Fund (IMF) reiterated its stance on El Salvador’s adoption of Bitcoin, urging that the country rescinds its decision on Bitcoin. Directors at the IMF emphasized the risks associated with Bitcoin. The statement said these directors “stressed that there are large risks associated with the use of Bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities”.
The report was released after bilateral discussions with El Salvador, and “cajoled” the country into taking back its decision on Bitcoin and at least take away Bitcoin’s legal status as money.
Nayib Bukele may have a plan or knows what he’s doing as a few months ago he tweeted “They can never beat you if you buy the dips”, after acquiring an additional 150 Bitcoins to the country’s portfolio and increasing the country’s holding of Bitcoin to 700. “We just bought the dip. 150 new coins! El Salvador now holds 700 coins”, another tweet which seemed like he was encouraging other countries to do the same, read. Last week Friday, the President who seems to be on a Bitcoin-acquisition mission said that the country had acquired $15 million worth of “really cheap’ Bitcoin. The price of Bitcoin plummeted last week and the world’s biggest cryptocurrency is down more than 50 percent from its November high.
The report published by the International Monetary Fund (IMF) also added that some directors had shown their concerns about the huge risks associated with issuing Bitcoin-backed bonds. These concerns refer to Nayib’s Bukele’s plans of raising $1 billion through a ‘Bitcoin Bond” in partnership with digital assets infrastructure company Blockstream.
In September, amid sparks created from its adoption of Bitcoin as a legal tender, El Salvador announced, through the President’s legal advisor – Javier Argueta, plans to exempt foreign investors from paying taxes on Bitcoin profits. This sparked a new set of criticisms. Javier Argueta said, “If a person has assets in Bitcoin and makes high profits, there will be no tax. This obviously is to encourage foreign investment”. Critics frowned against the decision already because they felt like this meant giving prospective investors and multinational companies who are already in the country a chance to evade their social and legal responsibilities. Tax evasion and avoidance is usually one problem that every government faces when dealing with big companies, and what the El Salvador government is saying, indirectly, is that these companies do not have to pay taxes (on Bitcoin profits). The rationale behind the decision was to encourage foreign investment in the country. Earlier in June 2021, El Salvador’s President mentioned that his administration was willing to provide permanent residency to foreigners who were willing to invest up to 3 Bitcoin in the economy of the country.
El Salvador also launched a virtual wallet for Bitcoin last year. The wallet called Chivo wallet was to enable Bitcoin-based transactions and faster cross-border payments. Another September tweet by the President said that “2.1 million Salvadorans are ACTIVELY USING @chivowallet (not downloads). Chivo is not a bank, but in less than 3 weeks, it now has more users than any bank in El Salvador and is moving fast to have more users than ALL BANKS IN EL SALVADOR combined. This is wild!”
Let’s lay some emphasis on the last part of the tweet that says “…more users than all banks in El Salvador combined…” In the country, about 70 percent of people do not have access to traditional financial services and the Chivo wallet was one great way to provide financial inclusion to the population. The Chivo wallet allows for transactions at no fee and is part of a strategy to carry people who have never been part of the banking system along. The Chivo wallet, backed by the government of El Salvador, was created to facilitate transactions in Dollars as well as Bitcoins from anywhere around the world. Chivo managed to bank 32.56 percent of the El Salvadoran population in less than a month.
Directors at the IMF all seem to agree on Chivo’s ability to increase financial inclusion in the country. They however emphasized the need for “strict regulation and oversight”. The President’s decision to give citizens $30 worth of Bitcoin may have encouraged adoption too. Citizens have reported cases of identity theft, in which hackers use their national ID number to open a Chivo e-wallet, in order to claim the free $30 worth of Bitcoin offered by the government as an incentive to open a digital wallet. The government will have to do something about this…
If El Salvador refuses to rescind its decision on the Bitcoin adoption, it may sever the “already faltering relationship” that it currently has with the IMF. Since early 2021, the country has been trying to secure a loan of $1.3 million from the IMF.
As per reports, El Salvador’s decision to legalize Bitcoin trading was motivated by the idea of stirring the nation’s slowed-down economy amid the ongoing Coronavirus pandemic. Additionally, the decision of making Bitcoin a legal tender was aimed at reducing the country’s reliance on the United States Dollar. This decision has however been strongly criticized, a reason being that Bitcoin was too unstable and too risky to be used as mainstream tender. Questions have also been raised around Chivo wallet’s security provisions, given that the platform is not yet a full-fledged Bitcoin bank.
El Salvador has also announced that it was building a fully-functional city based on Bitcoin called “Bitcoin City”. According to the information from the President, “Bitcoin city” will be located along the Gulf of Fonseca situated near a volcano. The idea is to make the volcano a source of power for Bitcoin mining. It is the government’s plan to provide energy for both Bitcoin mining activities and the city from the volcano. This makes sense because Bitcoin has been hugely criticized in the past for its excessive power consumption during its mining process. He also noted that “Bitcoin City” will be a metropolis. According to him, it won’t just be a mining hub as people would imagine. It is going to be a fully functional city with residential and commercial areas, restaurants, an airport as well as port and rail service. The plan for the city is to be laid out in a circle with a plaza that’ll host the Bitcoin symbol located right in the middle. The city will have no income, property, capital gains or payroll taxes, he said.
The country plans on issuing a $1 billion US “Bitcoin bond”, a tokenized financial instrument developed by Blockstream, on Liquid Network. $500 million, out of this amount will be used to construct energy and Bitcoin mining infrastructure while the balance of $500 million will be used to acquire more Bitcoin, increasing the country’s Bitcoin reserves to about 2,000 Bitcoins. Also, according to a press release by Blockstream, the country plans to create a securities law and grant a license to Bitfinex Securities to process the issuance.
Bitcoin is currently on its path to being banned in Russia following a proposal from Russia’s central bank citing a number of reasons including threats to financial stability, the country’s monetary policy sovereignty, the wellbeing of citizens, etc. For a long time now, the issue of cryptocurrencies has been a controversial debate among lawmakers. Cryptocurrencies have been argued to be used to fuel activities related to money laundering and terrorism (a common reason for banning cryptocurrencies by governments). In 2020, cryptocurrencies were given legal status in the country but were disallowed from being used as a means of payment. A report published by Russia’s apex bank mentioned that cryptocurrencies’ rapid growth is hugely dependent on speculative demand and that they exhibited characteristics of a financial pyramid causing them to be super volatile, making them a threat to the citizens and the nation.
A number of predictions have come up for Bitcoin in 2022 but one that raises the eyebrows of a large number of people is that of Carol Alexander, a University of Sussex professor of finance who predicts Bitcoin falling as low as $10,000 this year and advised people to wash their hands off Bitcoin.
Ibhadojemu Lucky Emmanuel is a graduate of Education and Economics from the University of Benin. He has a passion for tech and business and has been writing professionally for over a period of five years. He's written across various topics and segments and knew tech-business was it when he first stumbled on it. He has a great passion for music and arts, and wants to visit as many countries as he can someday.
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