El Salvador’s Credit Tumbled Again, and Bitcoin Could Be Partly to Blame

Bukele signed El Salvador’s so-called bitcoin law in June 2021 making it the first country in the world to recognize bitcoin as legal tender. That definition means Salvadorian retailers can list their prices in bitcoin and citizens can use it to pay their taxes. As Gizmodo previously noted, the bitcoin law’s also a potential boon for wealthy people looking to avoid capital gains taxes on their crypto earnings. In passing the law, Bukele argued bitcoin could improve the lives of an estimated 70% of Salvadorans who don’t have access to traditional financial services.

At the same time, only around 55% of Salvadorians had internet access in 2020 according to World Bank data, with an even smaller share likely owning crypto assets. Responding to that glaring accessibility gap, Bukele offered every citizen $30 in bitcoin as an incentive to download and register the government’s “Chivo” cryptocurrency app.

Over a year later it still doesn’t seem like average Salvadorians are rushing to embrace crypto. A March survey conducted by the Chamber of Commerce and Industry of El Salvador found a whopping 86% of businesses had never completed a transaction using bitcoin. Instead, over a thousand Salvadorians filled San Salvador streets last September to protest Bukele’s bitcoin law.

Regardless, Bukele’s still apparently going all in on bitcoin, with the leader even pressing forward on designs for an entire “bitcoin city” featuring a massive mining operation powered by volcanic geothermal energy. Early concept images of the city show a sprawling urban area caked in Trump gold with a central plaza that will look like, yeah you guess it, a bitcoin symbol.

Bukele’s remained committed to bitcoin even as its value continues to tumble in one of the largest and longest cryptocurrency downturns of all time. To put that into perspective, in June, the Salvadoran government’s total bitcoin holdings reportedly declined 57% in value from the same time a year prior. Where a normal leader would presumably cut their losses, Bukele instead bought the dip. The Salvadorian government reportedly purchased an additional 80 bitcoins over the summer.

“It’s clear President Bukele’s bullishness is not diminished by Bitcoin’s near 60% year-to-date decline,” 22V Research technical analyst John Roque wrote in a note seen by Bloomberg. “It won’t surprise us if he’s still bullish when bitcoin trades at our target of $10,000.”