In September 2021, El Salvador had become the world's first country to officially adopt Bitcoin as a legal tender.
Despite facing criticism, pushback and warnings from various countries and financial organizations, the country went ahead with the historic decision and eventually gave birth to what now has become its $300 million ¡®bitcoin revolution.¡¯
But the cryptocurrency market¡¯s bloodbath this year, coupled with the recent damage due to the FTX fiasco, seems to be posing a threat to the Bitcoin-legalizing nation.
On one hand, the President of El Salvador, Nayib Bukele, dismissed the floating rumours that his country holds its bitcoin stash on the bankrupt cryptocurrency exchange FTX, which was revealed by Binance¡¯s CEO, Changpeng Zhao, who said he discussed the matter with the political leader. The leader also said that the country has never had any business with FTX.
On the other hand,? El Salvador¡¯s President has also said that FTX is the opposite of Bitcoin. Bitcoin¡¯s protocol was created precisely to prevent Ponzi schemes, bank runs, Enron¡¯s, WorldCom¡¯s, Bernie Madoff¡¯s, Sam Bankman-Fried¡¯s, bailouts and wealth reassignments. Some understand it, some not yet. We¡¯re still early.
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While the statements by Binance CEO & El Salvador¡¯s President indicate the FTX fiasco has not impacted the country, the Bitcoin revolution in the nation has indeed been hurt, and numbers are there to back it up.?
On the day the Bitcoin Law took effect last year, El Salvador¡¯s President Bukele revealed that the country had begun to add bitcoin to government coffers. Since then, the price of the cryptocurrency has plunged more than 60% amid the bloodbath this year.
The government has an unrealized paper loss on bitcoin of around $60 million, according to sources, including bitcoin company Coinkite, which tracks the president¡¯s public announcements of bitcoin purchases. None of these losses is locked in until the country exits its bitcoin position.
In aggregate, the entire experiment and all its associated costs have only set the government back around $375 million, according to estimates, as per a?CNBC report. That¡¯s not nothing, especially considering the fact that El Salvador has $7.7 billion of bonds outstanding ¡ª but to an economy of $29 billion, it seems comparatively small but yet significant.
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Whatever the future of crypto holds, at least El Salvador¡¯s big bitcoin gamble has been a win in terms of attracting bitcoin tourists. The tourism industry is up 30% since the Bitcoin Law took effect last year, according to official government estimates. The country¡¯s tourism minister also mentioned that 60% of tourists now come from the U.S. the report mentioned.
In November 2021, El Salvador President Nayib Bukele announced plans to create the world's first ¡®Bitcoin City' during his speech at the Latin Bitcoin conference.
And later in May this year, he had taken another big step forward and shared the first glimpses of the ¡®golden bitcoin city¡¯ by tweeting about it.
But now, the?Bitcoin City plan is on hold, as per the?CNBC report, as is the $1 billion bitcoin bond sale, which was initially put on ice in March because of unfavourable market conditions.?
And with the crypto market showing no signs of revival this year, a question that pops up is whether the bitcoin revolution has been too risky a bet for the nation and the economic impact it has had, and above all, what the future holds if the crypto market continues to remain both weak and unregulated globally.
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