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Will Crypto Bankrupt El Salvador?
Nayib Bukele announced at Bitcoin 2021 in Miami that Bitcoin will become an official currency in El Salvador. A lot has happened since then. Bitcoin has been legalized for a year now in the country.
Nayib Bukele followed through on his promise. September 7, 2021 was the first day Bitcoin was legalized in El Salvador. It has been a turbulent time for Bitcoin in the Central Latin American nation since then. In the years since, it has faced problems, including the crypto winter, a global recession, and fierce criticism from influential critics. Bitcoin's legal adoption has left investors asking: Will the Latin nation go bankrupt?
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El Salvador's Bitcoin adoption stands the test oftime.
It has not been easy for Bitcoin to ascend in El Salvador, but there is still a long way to go. With a year passing, fewer fireworks have been lit. Early jubilation across the nation was dampened by significant drops in Bitcoin's value, which slowed adoption.
Even though Bitcoin hasn't come close to replacing El Salvador's primary currency, the U.S. dollar, it also hasn't brought about the financial downfall that some predicted. Those who oppose pumping national funds into an unstable and decentralized currency warned that the country would be thrown back into chaos. Not yet, at least. There is still a lot of recovery to be done in this nation after decades of civil war.
Bitcoin has plummeted in value, and the nation is on the verge of defaulting on its obligations, despite efforts to cushion financial fallout, including bitcoin-backed "volcano bonds" and a tax-free crypto-mining center.
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El Salvador must get rid of bitcoin to maintain its economy, according to the IMF. Despite this, the crypto-pro president who put the law into effect refuses to back down. His adoption of Bitcoin and a few other game-changing factors quickly earned him the title of Latin America's first millennial dictator.
El Salvador's primary currency for the past century has been the "colon." The currency's name is pronounced after Spanish explorer Christopher Columbus, signifying the country's colonial background. Its economy's constant fluctuations parallel el Salvador's never-ending battle for sovereignty.
Economic hardships take hold in the nation. Right-wing governments in El Salvador adopted the U.S. dollar in 2001 when the country was still recovering from a US-sponsored civil war. Dollarization, like bitcoin today, was seen by many as another instance of policy change without consultation. GDP growth remains low despite assurances from the government and ministers that the economy is flourishing. According to President Bukele, "Bitcoin would financially rescue a relatively underdeveloped nation if it was legalized. September 2022, however, will be different. It has been twenty years since El Salvador's economy has seen double-digit percentage growth. It would take more time and data to assess the Bitcoin trial in El Salvador."
"Nobody talks about Bitcoin anymore. It's been forgotten. I don't know if you'd call it a failure, but it hasn't been a success." said Carlos Acevedo, former head of El Salvador's central bank.
Due to security concerns, El Salvador postpones its Bitcoin bond.
In late 2021, a $1 billion Bitcoin bond was unveiled and scheduled to go on sale in early 2022. However, the nation has once again postponed the sale. To raise $1 billion from investors, the BTC bond was created to issue tokenized bonds. A Bitcoin City will be built, and more BTC will be purchased with the money raised.
"The initial release date of the bond was moved from early 2022 to September because of the current market state and global crises. It is expected that the Bitcoin bond will launch by the end of the year," Bitfinex and Tether chief technology officer Paolo Ardoino said.
According to Ardoino, his company's security concerns delayed the release of the bond. As gang violence has spread throughout the country, police forces have struggled to combat it. The government has diverted resources as a result.
According to news reports and industry experts, there are several factors blamed for the current crypto market slump and dwindling investor interest. The Bitcoin bond idea, on the other hand, is certain to attract investors regardless of the market's condition, according to Ardoino. According to the IMF, El Salvador's public debt could exceed 95% of its GDP by 2026. The country's national debt is $23 billion, and $800 million will need to be paid back to the IMF by 2023. —Crypto Weekly
