Opinion: El Salvador’s bitcoin experiment a year later — how it’s going with crypto adoption and surfing tourism

In May 2021, Nilus Mattive traveled to El Salvador to watch his daughter compete at the World Junior Surfing Championship. While he was there, he took the opportunity to learn more about the country’s bitcoin BTCUSD,

President Nayib Bukele ushered through a bill that made bitcoin legal tender 13 months ago, the first country in the world to do so. The cryptocurrency has crashed by more than 50% since then.

Today, Mattive, an author and investor, shares his insights on cryptocurrencies, El Salvador and the financial industry’s adoption of crypto.

MarketWatch: Tell us about your experience in the investment industry.

Nilus: I’ve been an investment analyst and financial writer for almost 25 years now. That means I’ve seen an awful lot of different trends come and go, and I’ve experienced a lot of different market environments as well.

MarketWatch: How did you get introduced to crypto?

Nilus: I knew about bitcoin very early on from other friends and colleagues in the investment world, and I loved the philosophy behind it. But I didn’t think it would ever gain mainstream appeal, so I largely ignored it — and the rapidly evolving crypto space — for a very long time.

My expertise was always conservative strategies — dividend stocks, other income investments, selling options and things like that.

Then, a few years ago, I started working with Teeka Tiwari and his widely recognized team of crypto analysts. That experience really challenged me to finally dig deeper and understand what was happening on a much deeper level.

MarketWatch: What’s your take on crypto and bitcoin as a store of value, and what were your thoughts when you first heard that El Salvador’s president decided to dive head-first into world’s first bitcoin experiment?

Nilus: I’ve always had a very practical viewpoint — people collectively determine the value of anything. This is why we’ve used everything from seashells to pieces of paper to easily exchange goods and services.

Bitcoin is no different. If a growing number of people recognize it as a store of value — and this is what we have been seeing with rising adoption rates — then bitcoin is becoming a store of value.

Obviously, we’re still in the relatively early stage — roughly 10% to 15% of Americans having had some dealings with crypto … and a global percentage is much lower.

But what we’ve seen very consistently is that once a major innovation gets into that 10% to 15% adoption range, the rate rapidly increases until you hit a point of 85% adoption or more. This has been true of everything from washing machines and microwaves to the internet. And if anything, newer technologies have been adopted more quickly.

In other words, we could be just on the cusp of a major boom in bitcoin adoption.

So, could the whole crypto space still end up imploding? Yes.

But it is far more likely that bitcoin is here to stay and will only get more valuable because of an inherently limited supply.

This is also why I wasn’t surprised to hear that a country like El Salvador was going to diversify its balance sheet into some bitcoin.

Bukele is making a calculated bet on everything I’ve just outlined.

It’s really not that much different than putting some of a country’s reserves into gold or some other asset. And it makes even more sense for El Salvador because the country was already tied to the US dollar and so many Salvadorans work here and send money to family back home.

MarketWatch: How did you end up in El Salvador?

Nilus: The country has excellent waves, and I had actually taken my family there for surfing vacations twice before, in 2016 and 2018.

This time — at the end of May — my daughter was going with the US Surf Team to represent our country at the International Surfing Association’s World Juniors, which is the equivalent to the Junior Olympics.

My wife and I obviously wanted to go watch that take place. But I also knew it would be the perfect opportunity to look into the country’s bitcoin experiment right there on the ground, especially since El Zonte — aka “Bitcoin Beach” — was just one town over from where the event was being held.

In fact, it’s interesting because Bukule has really prioritized crypto adoption and surfing tourism as two of his major governmental initiatives and they sort of collide right there in that area.

MarketWatch: Did El Salvador suddenly turn into a crypto mecca, or was it something entirely different? Were you surprised?

Nilus: I fully expected to see crypto everywhere, at least in the beach towns. But that wasn’t really the case.

El Zonte had a lot of “Bitcoin Beach” signs heading into the town, but very little visible crypto commerce taking place. I saw one large hotel proudly accepting bitcoin and one or two other restaurants with small signs but that was it.

Meanwhile, El Tunco, where I was staying, is the more developed tourist town. I saw a wider array of businesses there advertising acceptance of bitcoin payments through the Strike app — including a tattoo parlor. In fact, several restaurants were offering big discounts if you paid with crypto.

However, when I tried to download the Strike app to pay with bitcoin and get the discount, I hit a major snag: Since I had a US-based phone and cell number, there was no way to link my US bank account while in a foreign country. Strike’s customer care team was very responsive, but said the only solution was enabling the app back in the US or creating a Salvadoran account using a local phone number.

I think that sums up the current practicality of using crypto payments to buy dinner in El Salvador. The truth is that credit cards are far more convenient and widely accepted. And cash seems to the most common and appreciated form of payment.

In fact, while getting my morning coffee at a very hip shop, I asked the barista how many people used the Strike app to pay. Her answer? “Pocas,” or few.

Does that mean it won’t happen in the future? Of course not.

I’m very encouraged by some of the things I see happening — everything from the development of the Lightning Network to companies like PayPal PYPL,
making it easier to transact with crypto.

MarketWatch: Do you see any country profiting from such an experiment as El Salvador did with bitcoin? Was the IMF right to chastise the country?

Nilus: As I mentioned a moment ago, there’s no doubt that Bukule is taking a calculated risk. In my mind, it’s a very reasonable one.

For starters, the country’s bitcoin holdings represent a small portion of the country’s total reserves.

How is this much different than a country holding some gold in reserves? And before someone brings up volatility, let’s not forget that gold prices have experienced plenty of wild swings.

If bitcoin prices soar over the long term, Bukule will look like a genius. If they don’t, it will cause the country some financial harm, but nothing catastrophic on its own.

It’s no different than an allocation model I might recommend to an individual investor — most of your money in traditional assets and a small percentage in something with more risk as well as more potential upside. This is how I now manage my own portfolio, in fact!

Meanwhile, Bukule is getting tons of publicity and attention for his country. It certainly makes El Salvador seem cool and forward-thinking to younger, more tech-savvy travelers. That alone is worth something.

And as far as the IMF goes, I think there are two layers to their criticism.

Sure, they could be genuinely worried about the potential financial harm that a sour bitcoin bet could do to the country, especially since they end up on the hook for bailouts and such.

But as I said, the current risk seems relatively low given how much money El Salvador has allocated to bitcoin. And again, would they level the same criticism if Bukule was investing in gold or a strategic petroleum reserve? After all, we know how volatile oil has been lately!

Let’s also not forget how many massive financial catastrophes we’ve seen in economies based on fiat currencies, let alone how many of those might have been actually caused by poor central banking decisions.

So, I think it’s a lot more about what bitcoin adoption means at the sovereign level. A medium of exchange that goes beyond the world’s central banking system is not in the best interest of a body like the IMF. period.

MarketWatch: Is bitcoin or another cryptocurrency the future of international finance, capable of replacing or dethroning central bank digital currencies?

Nilus: I’d say the jury is still out.

As I just mentioned, fiat currencies have their own problems — including the core issue of theoretically unlimited supply.

And we already know that traditional financial systems can collapse in spectacular fashion. Central banks are hardly perfect decision makers.

So, from the high-level view, bitcoin — and/or some other crypto — can serve as a store of value and a medium of exchange just as viably as any other paper currency, precious metal or pile of cowrie shells. In some ways, it can do so more efficiently and without the need for any central authority or control. Again, it all boils down to adoption rates and universal acceptance.

Will bitcoin replace the existing system? That’s unlikely to happen anytime soon.

Could it exist outside the traditional system and provide a viable alternative to fiat currencies and centralized finance? That’s what crypto has been trying to do already with some early success.

And could more countries embrace bitcoin on their balance sheets just as El Salvador already has? absolutely. For all the same reasons that they’ve historically embraced things like gold.

If anything, given the state of geopolitics these days, I think more and more countries will choose to go that route.

Couple that with growing adoption at the individual level, and it’s easy to see why Bukule’s bet could end up paying off big time even if the Bitcoin Beach experiment has largely been a bust thus far.


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