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  • Writer's pictureRichard Murff

El Bitcoin!

...when meme-stocks go national

If you can picture an autocratic Kardashian then you’ve got the essence of El Salvador’s young president, Nayib Bukele, wrapped up in a designer nutshell. He opts for the Ralph Lauren bomber jackets and backwards baseball caps, the sort of thing that makes him, by his own logic, “the world’s coolest dictator.” The 37-year-old law school drop-out also tells the citizenry that he expertly manages the country’s finances from his smart phone. In the nude. Which should give the voters pause, but the Salvadorian voter is nothing if not theatrical.

El Salvador itself presents a prettier mental picture than Bukele fiddling with his smart phone in the altogether. First of all, it’s not really jungle: beautiful, haunting volcano cones separated the green central valley from the beaches, which look like a poor man’s Santa Barbara. Those volcanos don’t seem to be doing much, but during the country’s brutal civil war they served as a dump for the victims of the death squads – the esqadrones de muerte. Those bad old days may be past, but the civil war, for all its bloodshed, didn’t seem to help much government-wise.

Perhaps there was simply not much to be done – it is a country without enough arable land to sustain the population and almost no natural resources. So it was that a millennial former mayor of San Salvador, the country’s capital, founded a party called New Ideas and got himself elected president by hectoring a hopelessly corrupt and ossified political establishment on twitter. Then he spent two years complaining that said establishment were harshing his vision, without defining what that vision was. Somehow this worked as Salvadorians swept out the old guard in the midterms and Bukele’s New Idea’s party into unquestioned power.

Since then he’s only amped up the theatrics; like filling the legislative chamber with soldiers to ensure a vote when his way. In June of 2021, that he pushed through a law making the cryptocurrency bitcoin into legal tender – the first country to make the jump. This is easier in a place like El Salvador that doesn’t have its own currency. Its other legal tender is the US dollar, which even the world’s coolest dictator hasn’t got the swagger to abandon. Bukele is not a complete idiot – just how much of one remains to be seen.

After the announcement, Bukele used some $20 mm in government funds to buy 400 bitcoin, possibly in the nude, driving the price over $52,000. And yet, the core concept of price volatility, or for that matter supply and demand, seemed to be something with which Bukele is not entirely familiar. He assumed that the sudden jump in price merely validated his promise that the outsized returns investors were making off the crypto would make the country, and its put-upon citizenry, rich. It didn’t occur to him that a sovereign nation – even a poor one – buying into an asset might drive the price up.

To introduce the currency, the government introduced a crypto-wallet called Chivo (read: Cool, and isn’t it just…) stocked with $30 of free Bitcoin – roughly about three days of minimum wages. Or rather, since at the time one bitcoin was worth better that 50 large, the equivalent of $30 in satoshi – which is what the hep call one hundred millionth of a bitcoin, named for the Nome de guerre of the crypto’s mysterious creator. The satoshi functions somewhat like a dollar, or a penny, or whatever the hell the price is doing just then. Which illustrates, both inadvertently and beautifully, the dangers of using something so volatile as a national currency. The day after the launch, the price fell to $43,000 ending the day 10% lower that where it started.

Thousands of protestors took to the streets. The damage to many a savings account, though, has been limited. Not do to a technical glitch as the government claimed, but Salvadorians just sticking with the trusty gringo dollar. This is not, understand, because the Latin mind has a particular understanding of the risks inherent in crypto but because, like me, most Salvadorians aren’t exactly sure just what the hell bitcoin actually is.

The president continued to tweet his expertise as a crypto pioneer, mostly in English, which gives us a clue to his target audience. By November bitcoin was trading around $60,000. And Bukele was promising – in Spanish – that El Salvador would ride the price out of poverty. To be charitable, what President Bukele is playing at is finding a high-tech solution for his country along the lines of Singapore, another tiny state nearly devoid of natural resources. He wouldn’t be the only one to see such a solution was El Salvador’s best way out of poverty. Still, by turning the local economy into the plaything of the tech-bros he’s grabbed the wrong end of the stick. The IMF warned against the move; foreign investors have demanded higher premiums for Salvadorian dollar denominated bonds. Moody’s downgraded the country’s credit rating. The World Bank warned about macroeconomic stability as well as “environmental and transparency shortcomings.”

Sound enough advice, but the president’s brothers, Ibrajim and Yusef, are crypto-enthusiasts and investors, and they said to “pile in, hermano.” Or words to that effect. Crypto is like that.

So is politics. Bukele owes his rise to the top job largely to the fact that voters were sick of the old regime, the rampant corruption and the gang war fare that has killed more Salvadorians than the 12 years of brutal civil war and were willing to try anything new. And on the surface, he seemed the man for the job. When mayor of San Salvador – from 2015-18 – he didclean up the Plaza and downtown area that had been ruled by gangs. This made him look strong and heroic, but the reality was less Batman facing down the Joker and more Pope Leo facing down the Huns outside the Vatican: He bribed them to go away.

Voters in places like this get very practical, so keeping the gangs at bay, no matter how it’s done, will get a certain amount of support. Which is not to say that they trust the man. Most Salvadorians did download the Chivo wallets, spent their $30 and haven’t touched them since.

Bukele didn’t think that would do at all. In April of 2022, San Salvador hosted the World Blockchain Festival which looked how these things always look, with the rubber tight jeans, gleaming white trainers, and baseball hats turned any ole way – Tech-Bro Mariachi. The capital is built up the foothills of a volcano. The Zona Rosa – the city’s Bourbon Street was feeling fancy. A smiling, expansive Bukele announced building a new tax haven for the crypto-set to be financed with “volcano bonds” backed, in part, by bitcoin. The unoriginally named “Bitcoin City” will be powered by the geothermal energy of the live volcano in the shadow of which it will sit. All of which put the financial press in the crosshairs of a dangerously obvious metaphor.

That level of excess volatility, you understand, is healthy for neither volcanic building sites nor a national currency. That November high of $60,000 had been sliding and the social media-optimized glam of the World Blockchain Festival had more than a whiff of the meme-stock about it. While the credit agencies were downgrading Salvadorian sovereign debt ratings to junk and warning investors of a default, a posed, cluelessly confident Bukele doubled down on his national bet and tweeting to the nation and the world: “They can never beat you if you buy the dips. Presidential advice.”

But, of course, you can. On 19 May three different Chinese industry bodies banned the use of crypto, triggering a massive sell off. Bitcoin has lost another 25% since then. By early September it was trading at $19,000.

Any currency, crypto or otherwise, has an issue written into behavioral psychology that trumps blockchain, code or digital ledgers; that users must be able to agree on what it is worth. All free economies are barter economies – all a currency does is offer a constant, stable commodity that serves as a yardstick on one side of the transaction. For relatively well-adjusted humans not preoccupied with a revolution in decentralized, stateless finance but do need to fill their car with gas and buy a decent bottle of whisky – a bi-polar currency is a nightmare.

As for Bukele, he has distanced himself from crypto but just how much of his country’s money he’s sunk into it is hard to reckon. Ordinary Salvadorians haven’t followed suit by doubling down, but if the country goes bust, that will hardly matter.

Despite the collapse a crypto hedge fund this year and the entire asset market losing two thirds of its value over the last year, crypto has a future. Bitcoin may even have one too, if only as the Myspace of the crypto gang. Still, it’s hard to see how El Salvador’s favorite nude meme-stock tech bro is going to much more than blow the country up.


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