El Salvador Struggles to Adopt Bitcoin Despite Government Push

Taking Stock Of Crypto Adoption In The Americas.

SalvadorLatinAmCrypto

Every country does crypto differently. 

El Salvador’s government incentivized Bitcoin usage whereas Argentina’s crypto boom has been largely organic. The two routes – top-down and bottom-up – are quite distinct in their approaches and outcomes.  

It’s too early to tell which approach has better chances for long term success, but so far, it looks like the bottom-up approach is working better for crypto adoption in a nation.

Top-Down: El Salvador

When El Salvador made Bitcoin legal tender, all businesses were compelled to accept BTC for payments. To incentivize Bitcoin adoption, the Salvadoran government released a custodial digital wallet, gave its users $30 of free Bitcoin, and subsidized transaction fees.  

Despite these incentives, researchers from the University of Chicago found that only 4.9% of all sales in El Salvador are conducted in Bitcoin.  Researchers also found that 88% of businesses exchange Bitcoin revenue for fiat currency.

“You can’t just replace one aspect of a financial system and expect success,” Messari analyst Dustin Teander told The Defiant. “Each piece [of the financial system] relies on each other so if they don’t all work well together, then there’s added friction.”  El Salvador struggles with relatively high crime rates, natural disasters, and increasing poverty rates according to The World Bank.

Researchers found that the primary users of Bitcoin in El Salvador were young, educated males, and that almost 90% of the surveyed population did not use mobile banking at all. 

“Overall, despite the legal tender status of bitcoin and the large incentives implemented by the government, the cryptocurrency is largely not an accepted medium of exchange in El Salvador,” the authors wrote.

President Nayib Bukele is pushing to change that.  He announced in November that the government plans to build ‘Bitcoin City’ at the base of Conchagua Volcano. “The idea is that the local economy will run on Bitcoin, and the city will be powered by geothermal energy from the volcano,” wrote Laurie Clarke from MIT Technology Review. 

Many people are not convinced that the plan for Bitcoin City is worthwhile.  Johns Hopkins economist Steve Hanke tweeted that Bitcoin City “is an absurd stunt by a political dictator” and in response to El Salvador’s crime problem, tweeted “Bukele is too busy designing Bitcoin City to fight crime.” 

Bottom-Up: Argentina

Argentina’s inflation rate surged to a multi-decade high of 6.7% in March, hitting an annual inflation rate of 55.1% according to the National Institute of Statistics and Censuses (INDEC).  With inflation rising for years, there has been a grassroots movement around crypto.

Argentina was ranked 10th on Chainalysis’s 2021 Global Crypto Adoption Index, an index that factors in on-chain value received, on-chain retail value received, and peer-to-peer exchange trade volume. An annual Ethereum conference, ETHBuenosAires, has been hosted in Argentina since 2018.

On May 2, Argentina’s largest private bank, Banco Galicia, added a feature in their app for users to buy Bitcoin, Ethereum, USDC, and XRP.  Within a week, the move was countered by the government. On May 7, Argentina’s central bank banned banks from offering unregulated services for digital assets.  

Despite the ban, Argentinians are free to hedge their bets against the inflated peso and invest in crypto via decentralized exchanges. CoinDesk reported that in Argentina alone, crypto exchange Lemon has attracted one million users and 6-month-old Belo has surpassed 170,000 users. 

United States

While companies like Coinbase and OpenSea were founded in the U.S., crypto adoption in the US has certainly faced struggles. One thing that has sped up adoption has been rising consumer prices – inflation.

Inflation is up 8.5% for the period from March 2021 to March 2022 according to the Bureau of Labor Statistics.  This was the largest 12-month advance since December 1981. With the US Dollar losing its purchasing power, people have been turning to crypto.

The U.S. was ranked 8th on Chainalysis’s 2021 Global Crypto Adoption Index. In November, Pew Research reported that 16% of Americans said they had invested in, traded, or used crypto.  Nearly nine-in-ten Americans say they have heard at least a little about crypto. 

Lately, the main focus for US regulatory bodies has been stablecoins.  Following Terra’s meltdown earlier this month, U.S. Secretary of the Treasury Janet Yellen said it was “urgent” for Congress to pass new legislation to regulate stablecoins.

The crypto buzz in America has been built without government incentives.  In fact, it was fueled by businesses and individuals in spite of the government’s monetary policies, antiquated securities laws, and confusing tax policies.  

For continued growth, Messari’s Teander thinks the infrastructure needs to expand. “This means merchant apps, payments, e-commerce, etc.  We frankly are still a ways from that but also closer than you think.” 

America and Argentina’s bottom-up approaches could be one reason why everyone from your brother to grandma is talking about crypto – everyone is involved, not just the government pushing it on its people.

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