A year after El Salvador adopted Bitcoin as legal tender, the area where the world’s first crypto city was supposed to be built – a circular city backed by a volcano – remains a dense jungle.
President Neb Böckel had promised that “Bitcoin City” would be a tax haven for crypto investors and miners equipped with an airport, residential and commercial districts and a central plaza designed to look like a bitcoin symbol from heaven.
“Invest here and earn all the money you want,” he said, all white and wearing an upturned baseball cap, in front of hundreds of Bitcoin fans in November 2021.
But on a recent visit to the region in the shadow of the Conchagua volcano in the east of the Central American country, Reuters did not find any heavy machinery, construction workers or raw materials to indicate any progress toward building this massive bitcoin symbol.
For many, it became, instead, a symbol of folly as Bitcoin crashed.
“This experiment was very risky, very dangerous for a poor country,” said Oscar Picardo, director of the Institute for Science, Technology and Innovation at the private Francisco Gavidia University.
“We’ve seen (bitcoin) as a very speculative and highly variable financial asset,” he added.
A big part of the problem is that the decline in the value of Bitcoin and other cryptocurrencies has alienated investors.
When El Salvador, one of the poorest countries in Latin America, adopted bitcoin as legal tender on September 7, 2021, the cryptocurrency was close to $47,000.
A year later, it was less than halved and was trading on Tuesday at around $19,770.
The Bukele government declined to comment for this story but defended the bitcoin doubling – including the acquisition of 2,381 bitcoin – saying it was a long-term plan.
It says its bitcoin policy has attracted investment, reduced bank commissions to zero, increased tourism and promoted financial inclusion. But lower prices have heightened El Salvador’s financial risk, complicating its search for funds to pay $1.6 billion in sovereign bonds due in 2023 and 2025.
The International Monetary Fund has called on El Salvador to reverse bitcoin’s status as a legal currency citing financial, economic and legal concerns; The complexity of the transaction with the lender.
Experts said that the use of cryptocurrency has also failed to spread.
Neither the presidency nor the Ministry of Finance will share the numbers for bitcoin use through the government’s digital bitcoin wallet Chivo.
But a survey conducted by the National Bureau of Economic Research (NBER), a US-based NGO, found that only 20% of Salvadorans who downloaded the Chivo app continued to use it after spending the $30 government provided free credit to promote it. use.
The study states that the vast majority of Chivo downloads occurred in 2021, specifically in September, and that almost no downloads have been downloaded yet in 2022.
In theory, developing countries like El Salvador are ideal candidates for cryptocurrency adoption due to the continued dependence on cash and the largely unbanked population.
But according to an April report, “Bitcoin is not widely used as a medium of exchange” because users “do not understand it, do not trust it, companies do not accept it, it is very volatile, and it involves high fees.”
Although Salvadoran law requires all businesses to accept cryptocurrency, only 20% do, according to the survey of 1,800 households in El Salvador.
A small Jesus Caceres watch shop in central San Salvador is one business that does just that. There are three signs that say “We accept bitcoin,” but the 47-year-old watchmaker has only made two shorts with the cryptocurrency.
“One for $3 and one for $5, it was $8 total. Since then, no one has approached me,” he said.
The government has also encouraged Salvadorans working abroad to send money home through the government’s Chivo wallet, or other private wallets, without charging commissions. Known as remittances, these remittances from abroad account for 26% of the Central American country’s GDP, one of the highest in the world.
But according to central bank statistics, between September 2021 and June 2022, the country received nearly $6.4 billion in remittances and less than 2% was transferred via cryptocurrency wallets.
Like the use of bitcoin, the government shares few details about the “Bitcoin City”.
But its future looks increasingly uncertain since the issuance of “Bitcoin Bonds,” which Bukele said would support city building, was delayed after the cryptocurrency crash.
Residents of the place where the city is planned, between the Conchagua volcano and the Gulf of Fonseca on the Pacific coast, feel that the majority of the country’s 6.5 million people will not be favored.
“It doesn’t benefit the poor at all,” said fisherman and farmer Jose Flores, 48, who has lived in Conchagua for more than three decades.