What can countries learn from Bukele's BTC flex?

When El Salvador’s maverick president Nayib Bukele began signalling his moves for his country into Bitcoin, the initial reaction from global observers was generally lukewarm at best. After all, it wasn’t the first time a fringe economy had tested the water with alternative money and finance.

But after captivating investors, technologists, and scientists, it probably wasn’t long before a politician would take to the narrative around digital assets and their potential to redefine economic shifts.

El Salvador stood out as the forerunner despite not being one of the first nations to embrace Bitcoin mainly because it has adopted Bitcoin on a national scale. Bitcoin is legal tender in the country, and its president, Bukele, has been accumulating Bitcoin for years. As his recent post on X demonstrated, as of 9 December 2024, with Bitcoin price within touching distance of $100,000, El Salvador’s Bitcoin reserves are now valued at over half a billion US dollars.

As countries weigh the benefits and risks of integrating Bitcoin into their financial ecosystems, Learn Crypto examines El Salvador's experience and what other countries can learn from it.

Other countries Investing in Bitcoin

While El Salvador is the darling of crypto media, it is not the only country trying to exploit the potential of this digital asset. Several nations have made notable investments in Bitcoin, each with its unique approach and underlying motivations.

The United States, for instance, has seen a growing number of institutional investors and companies adding Bitcoin to their balance sheets. Companies like MicroStrategy and Tesla have made headlines with their substantial Bitcoin holdings, signalling a shift in how traditional businesses view digital assets. This trend has been bolstered by regulatory developments and the increasing acceptance of Bitcoin as a legitimate investment vehicle.

Ukraine has also emerged as a significant player in the Bitcoin space. The country has been actively working to integrate cryptocurrency into its financial system, with the government exploring ways to leverage blockchain technology for various applications. Ukraine's Ministry of Digital Transformation has been at the forefront of these efforts, aiming to position the country as a hub for cryptocurrency innovation.

Norway, known for its progressive stance on technology and finance, has seen a surge in Bitcoin adoption among its citizens and businesses. The country's sovereign wealth fund, the Government Pension Fund Global, has indirectly invested in Bitcoin through its holdings in companies like MicroStrategy. This move reflects a broader trend of institutional interest in Bitcoin, driven by its potential as a hedge against inflation and economic uncertainty.

These examples highlight the diverse strategies and motivations behind Bitcoin investments across different countries. While some nations are driven by the desire to foster innovation and economic growth, others see Bitcoin as a strategic asset to diversify their portfolios and mitigate financial risks. As more countries explore the potential of Bitcoin, the global landscape of cryptocurrency investments continues to evolve, offering valuable insights into the future of crypto.

El Salvador - most drastic, most transparent?

President Nayib Bukele, a charismatic and often controversial figure, championed the move to Bitcoin as a way to bring financial inclusion to a largely unbanked population and to attract foreign investment.

He passed laws that made Bitcoin an official currency alongside the US dollar, leveraging his strong control over the legislative assembly. Such strong-armed tactics were also displayed in his brutal crackdown on criminal gangs in his country, mobilising his army and police to take down or arrest suspected members virtually unchallenged.

While Bukele’s human rights record in this regard remains to be questioned, some believe that he has the will to make his Bitcoin policy the most transparent one the world has ever seen. The El Salvador Bitcoin treasury has real-time blockchain updates so people can see and verify themselves that there is Bitcoin sitting in the related wallet.

However, little other details such as source or expenditure reports are available. Neither is there any explanation of who actually controls this Bitcoin.

On the other hand, no other country that has invested in Bitcoin has shown what is essentially a proof-of-reserves. Norway’s sovereign fund, which invests in Bitcoin, does publish annual statements to shareholders. But it isn’t clear if other nations investing in Bitcoin (as listed on Bitbo) such as Finland, the US, UK, or China, will ever publicly display how much they own.

Bukele's recent tweet highlighted the nation's continued commitment to Bitcoin, showcasing the country's significant holdings and the perceived benefits of such an investment. El Salvador has accumulated over BTC 5,900, with Bukele frequently touting the potential for economic growth and financial innovation. The President's enthusiasm is palpable, with his X posts often blending youthful exuberance with a visionary zeal that has both inspired and alarmed observers.

Lessons learnt

However, the adoption of Bitcoin in El Salvador has not been without its challenges. The swift introduction of Bitcoin in 2021 was clearly without a mandate of the people, as protests broke out in the streets that year. Demonstrators feared that an already impoverished country would be further instabilised by such a bold move. Perhaps what was telling was when Bitcoin machines were set on fire with some holding up signs saying "Bukele Dictator".

Then, the rollout of the Chivo Wallet, a government-backed digital wallet, faced technical glitches and skepticism from the public. Videos on Youtube of people trying to spend Bitcoin in the country also found that some shopowners didn’t know how to operate the network. It’s difficult to say how much money the government already lost paying Chivo providers, who clearly haven’t equipped citizens to use Bitcoin as intended.

Abroad, international institutions such as the International Monetary Fund (IMF), have expressed concerns about the financial risks. The World Bank itself firmly rejected El Salvador’s request for assistance with the Bitcoin project.

As countries like El Salvador dive headfirst into the Bitcoin landscape, the economic impacts of such investments have become a focal point of analysis and debate.

Proponents argue that Bitcoin can drive financial inclusion, stimulate economic growth, and attract foreign investment. El Salvador, for instance, has seen a surge in tourism and increased foreign interest following its adoption of Bitcoin as legal tender. The government's initiatives, such as the Bitcoin bonds and the development of Bitcoin City, are designed to foster innovation and economic development.

Detractors will point out, however, that the new interest has been from the crypto wealthy, and that Bitcoin City and other initiatives (such as a proposed golden passport for highly-talented individuals) will only further distance the underprivileged.

There are many other real-world implications. In a rally, countries embracing Bitcoin have the opportunity to leapfrog traditional financial systems and position themselves as leaders in the digital economy.

But they must also be prepared to face the certain bear market, where crypto and Bitcoin are no strangers to markets shedding up to 90% of their value.

Looking ahead, the future of Bitcoin investments remains a topic of intense speculation and interest. As more countries and institutions consider incorporating Bitcoin into their financial systems, the landscape is likely to evolve in unexpected ways. Several factors will shape this future, including technological advancements, regulatory frameworks, and market dynamics.

One significant area of interest is the potential for Bitcoin ETFs (Exchange-Traded Funds). These financial products could make Bitcoin investments more accessible to traditional investors, thereby increasing liquidity and market participation. Additionally, technological innovations, such as improvements in blockchain scalability and security, could enhance the appeal of Bitcoin as a viable financial asset.

Regulatory developments will also play a crucial role in shaping the future of Bitcoin investments. Governments and regulatory bodies are grappling with how to balance innovation with risk management. While some countries may adopt favourable regulations to attract Bitcoin-related businesses, others may impose stricter controls to mitigate potential risks. This regulatory landscape will significantly influence the adoption and success of Bitcoin investments on a global scale.

Ultimately, the future of Bitcoin investments will depend on a complex interplay of factors, including market acceptance, technological progress, and regulatory clarity.

While the path forward is uncertain, one thing is clear: Bitcoin has firmly established itself as a disruptive force in the financial world. Whether it will fulfill its promise as a revolutionary financial asset or face insurmountable challenges remains to be seen.

For now, the world watches as countries like El Salvador lead the way, navigating the uncharted waters of Bitcoin investments.