by Greg Barker
Thursday, 9
September 2021
Explainer
08:00

The cynicism behind El Salvador’s Bitcoin decision

The people don't want it, but that won't stop the currency's cheerleaders
by Greg Barker
A sign in El Salvador reads ‘The Bitcoin bill must be repealed, it will bring more corruption and poverty’. Credit: Getty

It was the morning of September 7th, 2021, when El Salvadorian President, Nayib Bukele, was about to officially enact Article 7: a law declaring Bitcoin as legal tender that he seemingly cooked up in a hurry, only a few months prior.

In the run-up to its passing, Bitcoin’s biggest promoters worldwide hyped up the event as a revolutionary moment for El Salvador, one that could liberate its citizens from the clutches of the U.S. empire, and its supposed unofficial puppet, the World Bank.

This Bitcoin elite, however, has seemed to discount President Bukele’s questionable past. As journalist Manuel Melendez-Sanchez writes: “[He] has used state agencies to harass journalistsinvestigate opposition parties, and undermine government oversight.”

Weirdly enough, that might be because they have either met up with Bukele in El Salvador or cheered on his policy via video link at the “Bitcoin 2021” Miami conference. Despite his authoritarian streak — antithetical to the purported egalitarianism of the crypto world — somehow this didn’t matter to Bitcoin’s main publicists.

Instead, the pre-law price pump was the goal. All the highest-profile bulls, like Lark Davis and Peter McCormack, showed their support for Bukele’s historic Bitcoin law. Moreso, the cryptocurrency’s main evangelist and Microstrategy CEO, Michael Saylor, couldn’t resist one last promo, urging people to buy $30 of Bitcoin before the law passed.

Soon after Bitcoin’s “watershed moment” came to fruition, however, it delivered a cascade of calamitous events. Within hours, the Bloomberg Galaxy Crypto Index plunged over 10%, the Bukele-backed Chivo Wallet went offline for maintenance, and all the celebrities who’d recently promoted crypto fell into the shadows, realising they might have egged their fanbase into buying the top.

Then, in a strange twist, Bukele appeared on Twitter. Engaging in the popular investing adage of “buying the dip”, he announced an additional purchase of 150 Bitcoins.

https://twitter.com/nayibbukele/status/1435260422110732300?s=20

Meanwhile in the real world, enraged by the Bitcoin law, El Salvadorians, took to the streets in protest. Those who had bought into Bukele’s vision experienced Bitcoin’s volatility first hand, watching its price — and their Bitcoin holdings —plunge double-digit percentage points in seconds.

After all this turmoil, we should ask who Bitcoin is really helping: ordinary El Salvadorians or the country’s elite? And just as importantly, we have to question the Bitcoin movement’s legitimacy, impact, and endgame, especially when its top advocates endorse an autocrat, hell-bent on imposing an asset that most citizens don’t want.

Minus a few prominent Bitcoiners, we saw the Bitcoin community remain silent when any “FUD” countered their narrative, even if that meant harm to the people of El Salvador. Because it’s they who must face the consequences of Bitcoin’s major advocates supporting a fiercely volatile, unorthodox currency becoming part of El Salvador’s official reserves.

But if anything good comes out of this fiasco, it’s that El Salvador will not have to deal with the World Bank to achieve Bukele’s Bitcoin vision. Citing “environmental and transparency shortcomings”, the “international financial institution”, with its history of poking its beak into other countries’ affairs, has not supported El Salvador’s Bitcoin venture.

Still, this will leave every El Salvadorian citizen wondering what’s more of a danger to the monetary future of their country: a shadowy global organisation not offering its blessing, or that their money supply is about to be governed by a dip-buying dictator.

Greg Barker is an independent journalist and quant, who also writes under the name Concoda. You can find him on Substack and Twitter at @concodanomics.

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Jake Prior
Jake Prior
1 year ago

Throwing around terms like ‘dictator’ should come with a little more evidence than the author provides for a president fairly elected two years ago. Why can’t this publication bring itself to give both sides of this issue? It’s precisely what you pride yourselves on doing, but there’s been nothing but negative, accusatory and in my opinion poorly informed articles on Bitcoin. It may have it’s downsides, but there are certainly good arguments in support of it, you should inform your readers of both sides to give them the opportunity to make up their own minds.

Galeti Tavas
Galeti Tavas
1 year ago
Reply to  Jake Prior

Surely you do not expect every article to give both sides? This on is anti – the policy of bitcoinization of El Salvador, and is also taking ‘dictator’ from the Slate magazine linked above.

“Meet Latin America’s First Millennial DictatorThe self-described “coolest president in the world” is developing a new form of authoritarianism that may soon attract imitators.”

Tether is what I keep wondering about, the $ backed Stable Coin that is used in 70% of all bitcoin transactions as the medium between bitcoin and Fiat. As it is backed by questionable Corporate ‘Paper’ rather than Treasuries, it adds another worrisome layer to the whole thing.

This situation is a wild thing, I want Unherd to keep up a steady stream on Crypto – and CBDC especially as I hear really weird things of the Digital renminbi.

LCarey Rowland
LCarey Rowland
1 year ago

In the world community, somebody (some country) had to do this. Perhaps Bukele’s initiative will prove to be the first step of an international movement. Or! or a disaster waiting to happen in which the world will observe, and learn, about the the actual, functional claim–or failure thereof– of Bitcoin (and cryptos generally) to facilitate productive economic activity and value storage.
We shall see. Maybe El Salvador will emerge as the mouse that roared.

Hardee Hodges
Hardee Hodges
1 year ago

Watching the volatility of an intangible asset suggests why many would be unhappy over an unstable currency. While removing themselves from dependence on the dollar might be admirable, Bitcoin as a medium of daily exchange seems foolish. As with gold, there is not enough for all transactions. When the last one has been minded there are no more but perhaps it’s value might be stable. Great experiment, but likely to fail.

Galeti Tavas
Galeti Tavas
1 year ago
Reply to  Hardee Hodges

“While removing themselves from dependence on the dollar might be admirable,”

???????????? Why? They actually take all Currincies as valid – you can use Euros there too – or British Pounds, or Rubles. But the Dollar is a great thing for stability there, don’t rush to fix what is not broke.

Galeti Tavas
Galeti Tavas
1 year ago
Reply to  Galeti Tavas

Why Down vote this? El Salavador has been ‘Dollarized’ for 20 years, with many countries. It was staring at hyperinflation, which is the most destructive force there is on a people, and so got a sold currency. This has been good.