The accession of bitcoin to the status of a legal currency in El Salvador was viewed by many cryptocurrency investors as a watershed moment, but the rocky rollout of the country’s digital wallet and growing concern over President Nayib Bukele’s tactical approach to the bitcoinization of his country’s economy has caused some supporters to warn that the episode will prove to be a major setback.
Michael Saylor, founder and CEO of Microstrategy, a business intelligence firm whose stock has become a proxy for bitcoin after Saylor made it a priority to use company cash to buy up the digital currency, joined a chorus on social media over the weekend urging users to purchase $30 in bitcoin in solidarity with Bukele’s project.
The push may have helped the price of bitcoin
reach nearly $53,000 on Monday, the highest level since May, but it also served as a prelude to a dramatic crash of roughly 12% since that time. President Bukele appeared to blame the International Monetary Fund for helping to engineer the price collapse as he declared the country had purchased more bitcoin in response to the fall in prices.
Many crypto media personalities adopted this conspiratorial line of attack. Ran Neuner, host of the bitcoin webcast Crypto Banter, ran with this theory on his YouTube show.
“It’s us against the traditional system,” he said. “If the IMF wants to dump bitcoin, we and the whales will continue to the buy. We will buy these dips and we will maintain the price.”
Others in the bitcoin community do not share a similar feeling of solidarity with Bukele. Venture Capitalist Nic Carter argued that because El Salvador’s law requires retailers to accept bitcoin as legal tender, the experiment runs counter to bitcoin’s libertarian roots.
“A far stronger gesture of faith in bitcoin would be to establish it as a parallel monetary network, on par with dollars,” Carter wrote in CoinDesk in June. “If the bitcoin law simply eliminated capital-gains taxes for bitcoin transactions, allowed the settling of tax liabilities in bitcoin and established it as an acceptable but not obligatory legal tender, it would accomplish this.”
Unix systems administrator and author of “Attack of the 50 Foot Blockchain,” David Gerard speculated in an interview with MarketWatch that requiring retailers to accept bitcoin makes sense only if there is an urgent need to increase its adoption.
Bukele does appear to be in some sort of rush — he announced his plan to make bitcoin a legal currency on par with the U.S. dollar
at a crypto conference in Miami in June and three days later the law was passed through parliament, with the law going into effect just three months after that.
Gerard argued that 90 days is far too short of a time for the government to successfully create and roll out its own custodial wallet program, called Chivo, that functions as a sort of PayPal for Salvadoran holders of bitcoin. Reports proliferated Tuesday of users who could not download the program and government-backed ATMs that ran out of cash dollars within hours.
“They bulldozed into it with no planning and preparation,” Gerard said. “Payment systems are really complicated. Anything with a really good user interface has massive complexity behind, it and there’s no exceptions.”
The rapid rollout could be explained by the Salvadoran economy’s need for hard currency, Gerard argued. The country has relied on the U.S. dollar as its currency for 30 years, which brings stability to the economy but makes it difficult for the government to deficit spend, because it must borrow dollars on the international market.
But the advent of the Chivo app could create a means for the Salvadoran government to create money as if it were printing its own currency. Like any person who owns bitcoins through a custodian, users of Chivo don’t own actual bitcoin, but a claim on Chivo that is equal to one bitcoin. Without proper supervision there is nothing technically stopping Chivo from creating more of these claims, in a sense creating bitcoins out of thin air, Gerard warned.
Andres Guadamuz, a lecturer in international property law at the University of Sussex underscored the irony of bitcoin enthusiasts cheering a government forcing its citizens to use the currency using a tool that enables central control and surveillance of the money supply and its citizenry.
Guadamuz concerns over a “possible dictatorship” spring from concerns over actions President Bukele has taken to solidify his control on power after winning the office in 2019. After Bukele marched troops into his country’s legislative body to intimidate it into approving new borrowing to support his record-breaking security budget, the Washington Post declared that he was “updating the autocrat playbook for the TikTok generation.” Earlier this week, El Salvador’s top court ruled that Bukele could run for a second term, contrary to the country’s constitution, drawing censure from the U.S. Embassy there.
Salvadorans mostly continue to support the president even as polling and protests indicate they do not support the bitcoin law. It remains an open question, however, whether bitcoin enthusiasts around the globe will continue to support the project.
As one local Salvadoran business owner told Decrypt Wednesday, “It crushes my soul to see bitcoin maximalists around the world cheering this when, if they actually sat down and read the law and regulations its completely opposite to everything they preach.”