It’s unbelievable.
Amazing even. I almost can’t find the words here.
How could this possibly have happened?
Where do I start? Can you believe that El Salvador’s experiment with Bitcoin as its national currency is a failure?
I know – stunning right?
Or maybe not.
The above was my opening paragraph for the Property Cycle Investor newsletter written on January 9th, 2023. In it I decoded the true reasoning behind El Salvador and its decision to adopt bitcoin as its new national currency.
I said at the time that it was a brave experiment, and I painted a bleak picture of this adventure, and now I can bring you the results.
I have made it very clear that there is a link between cryptocurrencies and the 18.6-year Real Estate Cycle.
And without knowing this link, I forecast that this would not end up well for the people of El Salvador.
Let me show you once again why nothing, and I mean nothing, can come close to what a little knowledge of the land markets can give you. You will never see the world again the same way once you learn this.
And my work on this El Salvador experiment with bitcoin back in 2023 is yet another example why that is the case.
So, let’s begin.
Before we dive into what’s going on today, it would be useful to take a step back and review what this is about. From that aforementioned 2023 newsletter.
In 2001, long before Bukele arrived on the scene, El Salvador phased out its domestic currency, the Colon, and introduced a US dollarized competitive-currency regime, one in which the US dollar was legal tender, but any other currency could be used.
Since then, the country has rediscovered economic stability. What occurred was most consumers traded and paid for their goods and services with colons pegged to the US dollar.
The thing is though, this initiative worked better than imagined. The country experienced low inflation and strong economic growth.
If you ask me, a perfectly reasonable outcome for a country as small as El Salvador.
…on June 1st, 2019, newly elected President Nayib Bukele proclaimed that bitcoin would now be the national currency.
Not much was made of this initially unless you were part of the crypto crowd at the time, which relished another opportunity to push their claims for widespread mainstream adoption of bitcoin.
Now, one important part of the El Salvador economy was something well known across much of South America, though it’s not as prevalent in places like the US or Australia.
It is called remittance. A way that family members can gain employment overseas for higher wages than they could reasonably expect back home and then send back some of this money to support their families in El Salvador.
Above all else, this change in the national currency put the entire system at risk.
So, in September 2021 when Bukele made his idea law, he knew that he had to sweeten the deal with residents and voters.
The Salvadoran government designed and launched an app, the “Chivo Wallet.” It was intended to facilitate transactions in bitcoin. Salvadorans were encouraged to download the app.
Indeed, doing so was accompanied with a $30 gift which was a large part of the average workers weekly salary.
Bukele claimed that the law would lower the cost of remittances to El Salvador and would improve the country’s financial inclusivity.
It’s here where the sheen of this initiative starts to wear thin. You see, the government announced the huge success of widespread adoption of this new digital wallet as proof that bitcoin would indeed become a legitimate and accepted currency across the country.
The view on the ground was somewhat different.
$30 is equivalent to a month’s wage. Of course, the majority would download it! Once they had their money though, the digital wallet was quickly forgotten. Not a stat the El Salvador government was keen to promote.
Nor would they be happy if about 80% of merchants simply decided to never transact in bitcoin. So, no true widespread use of the new digital wallet, and many merchants preferring to do their business outside the Bitcoin ecosystem. Doesn’t sound like much of a new national currency, right?
Then there was the remittance issue. As stated above, remittance is a very important component of the overall El Salvador economy. This bitcoin initiative could have seriously threatened this important component of family income in the country.
From the 2023 newsletter:
As for the Chivo wallet, and the promise of low-cost remittance, the fact is the traditional wire transfer cost in El Salvador were already one of the lowest in South America, a by-product of pegging their national currency to the US dollar in the first place!
Not surprisingly, a National Bureau of Economic Research working paper found that in February 2022, a miniscule 1.6 percent of remittances sent to El Salvador were received via Bitcoin.
Again, the second pillar of Bukele’s ‘promise’ to the people of El Salvador shown to be nothing but hot air.
I said it in 2023, and I’ll say it again. This is a complete abject failure and damning evidence against the bitcoin cult who continue to claim it as a legitimate alternate currency.
That got pushback at the time. Not hearing the same from that crowd now.
But understand this. This was not why I thought the subject worthy of your time enough for me to write about it back then.
There was something else going on. That something else was extremely important for you to understand, then and now.
And it was this. For those who understand the land markets, which is the minority frankly, the thin veil that President Bukele hid behind promoting this crypto currency was quickly removed. In its place was a tale as old as time.
