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In this episode of Bitcoin Magazine’s “Fed Watch” podcast, we, your hosts Christian Keroles and Ansel Lindner, discussed my recent article “How Bitcoin Will Affect El Salvador’s Geopolitics”. You will hear an optimistic but realistic perspective on El Salvador and how Bitcoin can affect countries when they adopt it as legal tender.
We started the show by talking about why this topic is important. El Salvador is paving a way by adding Bitcoin as legal tender, and there is a lot of build up to Bitcoin’s performance. People are thrilled that Bitcoin will show the world all the benefits it can bring to the nations ready to take the big leap into the future.
The article is divided into several sections and we took the time to go through each one.
History and politics come first. The history of El Salvador is multicultural. It was the meeting point for Maya, Aztec and other Central American cultures. The region has traditionally been relatively decentralized into micro-regions and never consolidated into a vibrant center of power. In recent times, people have struggled to consolidate legitimate power in government, with civil wars and rampant, violent gangs. President Nayib Bukele’s recent achievements in this area are promising, but do not prove that her historical inclinations are forever gone.
Next we looked at geography, which is at the heart of any geopolitical analysis. El Salvador has many weaknesses in this regard. It has no navigable waterways, no commercial railways, no major ports, and is not on any major trade route. This tiny country has a good road network, high hydropower and geothermal potential, and great beaches with some of the best surfing in the world. These facts alone outline the country’s future. It won’t be a commercial / industrial powerhouse and will thread a needle to use its strengths to grow.
Remittances are also a large part of the Salvadoran economy, accounting for 25% of the total in 2020, according to the World Bank. Because the economy is so reliant on wire transfers, it is vulnerable to high fees from Western companies like Western Union. Lowering fees and enabling billions of dollars in added value to reach their citizens is a priority high on the current regime’s list of priorities.
El Salvador very wisely identified Bitcoin as the perfect tool to double its unique strengths. Bitcoin mining can unlock its clean energy potential and encourage investment in this industry. Bitcoin is global and limitless, which makes it ideal as a currency for the tourism industry; and fees for transfers can be minimized by innovative companies.
Despite all of these things, Bitcoin will bring tremendous benefits to El Salvador, but expectations should be realistic. According to the World Bank, GDP per capita in 2020 was $ 3,798.60, above that of its immediate neighbors but a third of the level of Costa Rica and Panama. Doubling El Salvador’s economy over the next decade would be a fantastic result, but that’s still lagging behind other Central American countries in terms of GDP per capita. With more money, there are more problems. It is unlikely that El Salvador has overcome its unique geopolitical challenges and will not remain so stable forever. These are all important factors to consider when deciding to move to the Bitcoin-friendly country as a Bitcoiner.
Finally, we ended our episode with a general discussion of Bitcoin price trends. The fundamentals are very strong, but will we see a decline before moving up any further? We talked about mempool, network traffic, mining hash rate, GBTC unlock, and other concerns. These topics are covered in more detail in my newsletters on bitcoinandmarkets.com.
If you want to take a sober look at El Salvador and understand how Bitcoin can affect countries when they adopt it as legal tender, this episode is a must-see.