Most members of the media have considered the negative components of President Nayib Bukele’s Bitcoin Gambit in El Salvador. It is true that the value of Bitcoin has tumbled since the president first bet big on the cryptocurrency. It is true that the IMF and lenders look at the country’s economic policy with extreme distrust, and agencies have dropped the country’s credit rating. It is true that the country has over a billion dollars in debt payments due over the next twelve months. If you look at how things have played out this far, you could say that it hasn’t quite gone as Bukele has hoped. In fact, many have said that.
But, let’s be pragmatic. Estimates show that the country has spent $374 on the Bitcoin gambit, in totality. A $50 million unrealized loss on Bitcoin holdings, in a country with a $29 billion economy, is less than a half percent of the national budget. But that unrealized loss is unrealized for a reason. President Bukele is doubling down on Bitcoin. He’s even bought the dip. He understands that this drawback is due to macroeconomic conditions, not the least of which being staggering inflation due to massive pandemic-related spending packages. Then, there’s an unpredictable war in Eastern Europe, not to mention the ongoing supply chain issues, still lingering from Covid shutdowns.
Those things have rained hellfire onto the digital assets space, but so, too, have they affected the traditional markets. The Dow Jones lost 1100 points in a single day of trading last month. Bukele knows that Bitcoin will bounce back. His investment in Bitcoin is one which is long-term. That said, he’s up for re-election in 2024 and continues to boast high approval ratings, thanks, in part, to his tough-on-crime stances.
The truth is that the economy in El Salvador has long been plagued by unfavorable conditions. The country has long paid a premium for its debt. In the country’s most recent credit downgrade, Fitch maligned the country’s “uncertain access to multilateral funding and external market financing given high borrowing costs,” in addition to its “limited scope for additional local market financing.”
But, let’s consider that. El Salvador has long had precious few major opportunities. Through the Bukele’s Bitcoin Gambit, the country has re-emerged on the global scene. While the move to Bitcoin was aimed at bringing the majority unbanked population into the modern financial scene, that takes time and consumer education. What the country has seen, immediately, is external interest. That, in and of itself, is significant, considering that, not long ago, El Salvador was more dangerous than Afghanistan.
Gambit — a term that many may only be familiar with from the recent Netflix hit, The Queen’s Gambit. But the definition, in part, says: an “opening remark, typically one entailing a degree of risk, that is calculated to gain an advantage.” Bukele put his country on the map again. Sure, there are real risks. Significant risks. It may well be the final nail in the country’s bid for a billion-plus dollar loan from the IMF. However, he has propelled El Salvador into the spotlight, creating a culture of innovation which is tech friendly and forward focused. Unfortunately, Bukele’s gambit launched right before a massive downturn in the markets, driven by investor fear. However, the cause doesn’t matter. Whether Bukele will be regarded as a forward-thinking leader is entirely dependent on Bitcoin’s turnaround.
There’s little doubt that Bitcoin will, indeed, turn around. But, timing is everything. Until then, there’s much to be said for the tourism boost that the tiny Central American country has received. Tourism is up 30% since Bitcoin became legal tender. The administration has planned a Bitcoin City, complete with mining powered by a volcano. Granted, the project is on hold due to market conditions, but El Salvador has a number of irons in the fire that they didn’t have three years ago.
In their cryptocurrency wallet rollout, only 20% of users continued to use the wallet after they spent their $30 in Bitcoin given to them by the government, but many argue that was due in large part to a poor user experience within the wallet. There’s a great deal that the country must work on, even within the master Bitcoin plan. Beyond it, it must find a way to begin to balance their budgets and continue to lower crime rates. However, if Bitcoin bounces back, and if the country can bring in significant external investments, many may look back at this gambit in a positive light. There are many opportunities to exploit, once the market begins to correct. In addition to the tourism angle and the mining apparatus, if the country continues to work on its economic fundamentals and infrastructure, it could see interest as a jurisdiction which is friendly to fintech and other cutting-edge innovations.
Sure, there’s a lot of risk here. And President Bukele has suffered the consequences of pretty poor timing. However, the gambit isn’t over until his political shelf-life wears out. And, right now, it doesn’t appear that will be in the near-term.
