Bitcoin and other cryptocurrencies have long been a topic of debate. Many argue about the pros and cons of these digital currencies. The introduction of Bitcoin as legal tender fuels these discussions even more and makes them all the more present.
Although it will take some time for its full impact to be felt, Bitcoin represents a potential solution to global poverty or the prevailing gap between the rich and poor.
In September 2021, El Salvador became the first country in the world to adopt Bitcoin as legal tender.
The start of the new currency was definitely bumpy. The country had to deal with various technological problems and an additional slump in Bitcoin's price. Moreover, people are still very suspicious of transactions between dollars and the tiny amounts of cryptocurrencies.
Major franchise chains based in the capital have started accepting Bitcoin via smartphone. In addition, the Salvadorian government introduced a network of 200 Chivo ATMs to familiarize consumers with Bitcoin. If President Nayib Bukele's plan to introduce Bitcoin is a success, it is very possible that this change will benefit the impoverished Salvadorian economy.
Government officials in El Salvador claim that the introduction of Bitcoin will increase the affordability of services, expand payment options, and increase financial innovation.
Success could also encourage other countries to adopt cryptocurrencies, strengthening the possibility of reducing poverty worldwide.
Nick Carter of Castle Island Ventures was one of the first to connect with El Salvador's president via social media. He encouraged him to introduce Bitcoin as a means of payment.
You hosted a historic Twitter Spaces last night. You started to talk about Bitcoin because that's all you talk about online. And then I think Jack showed up and a bunch of people, and then the president of El Salvador showed up, and you talked and you single-handedly turned around the coin because now it rallied today. But in your understanding and in your conversation with the president, what is the main benefit to this new law? How will it, in theory, help the economy and the people of the country?
Well, it was a fascinating time because the president, President Bukele, joined us on Twitter Live as this law was being voted in, and we could actually hear the clapping and the votes from the parliamentary chamber to discuss with Bitcoiners on Twitter the merits of the law. The objective seems to be making using Bitcoin as an actual medium of payment, medium of exchange, much more frictionless in the country, eliminating all capital gains taxes, which is, you know, of course a big impediment to actually using this thing as a currency. You know, it potentially in service of making, you know, Bitcoin-based remittances cheaper and less frictional, for instance. So that seems to be sort of the main thrust of the law.
What can we extrapolate then as far as what the future holds beyond El Salvador here? Do you think we'll see other, I guess, legitimate countries like El Salvador embrace this, and other larger countries?
Well, in following the Salvadorian news, a number of politicians in Latin America, many of them younger on the millennial side, signaled their affinity for Bitcoin as well, and made noises about potentially introducing similar ideas. We'll see if any of that actually transpires. We know that Bitcoin, cryptocurrency, stablecoins have very high penetration in places like Colombia and Argentina. You know, Latin America is certainly no stranger to sovereign defaults or, you know, periods of high inflation or monetary repression. So we see high penetration there. There's certainly a class of policymakers that see an opportunity to gain favor by signaling their affinity. And, you know, we'll see what happens, but this is the first — El Salvador is the first non-pariah state to really legitimize and legalize Bitcoin usage in sort of its intended way. So, you know, it seems like a big sea change, frankly.
A big sea change that only though meant that we saw a 7% rally. You're still seeing Bitcoin in of itself under pressure, significantly off its highs that we saw previously in the year. Nick, are you expecting the issue for El Salvador going forward is also the ongoing volatility within Bitcoin as well? Is at any point we expecting that to just reduce a little bit so we see it more regularly used as a currency, not just by those that are suffering significant inflation or indeed seeing an issue with a hard currency peg?
It's hard to say. Bitcoin's volatility is seen by many as, you know, a natural consequence of the scarcity of the system. Of course, something like gold, which is, you know, similarly kind of a commodity fix and issuance, doesn't evidence such significant volatility. But Bitcoin is still early in its life and, you know, very patchily adopted globally. And also in terms of El Salvador, it's a very small country. You know, foreign exchange reserves in the single-digit billions. The fund that President Bukele was talking about establishing, which would hold a position in Bitcoin, he signaled they would be in kind of the $150 million range, so smaller than many kind of crypto hedge funds. So while this does represent sovereign adoption, it's not sovereign adoption by the largest sovereigns just yet. So we'll see. But in as much as using Bitcoin as a medium of payment or a bridge currency, you don't necessarily have to have exposure to the asset for a long period of time in order to sort of take advantage of its nice properties.
Nick, the Bitcoin community has a history of like sort of getting excited about certain people and then they break your heart. Elon Musk is probably the most prominent one, and then he sort of, he stabbed you in the back. Are you worried that the president won't have a commitment to Bitcoin per se, and next month it's like, and now we've asked the Ethereum Foundation to digitize health records and XRP to modernize our banking system, and then it'll just be like a bunch of crypto buzzwords in a few weeks?
Well, what was notable about this bill that was passed was it specifically says Bitcoin, and all of the messaging is about the Lightning Network and about these payment systems built on top of Bitcoin, and there's relatively little messaging around cryptocurrency more generally. So the commitment in this case does seem to be regarding Bitcoin. Of course, who knows what's going to happen in the future. And in fact, there is going to be plenty of narratives out there around Bitcoin as consorting with, you know, someone that is perceived by many in the West as an authoritarian dictator. But any adoption of Bitcoin at the sovereign level is interesting and noteworthy. We don't shy away from that. There has been adoption of Bitcoin by other sovereigns that, you know, are considered pariah states, and nobody tries to hide that. So it's certainly interesting to watch this play out in real time.
In South America, there have already been several hyperinflations in the past. In Venezuela, for example, too many new banknotes are in circulation today, devaluating cash. Unlike the wealthy people of the Western world, people from developing countries are mostly excluded from the benefits of a higher money supply. Their surplus capital is far too small to be invested efficiently. The majority simply do not have the ability to earn enough interest to protect their savings. In this regard, Forbes reported that only about 70% of El Salvadorans are even banked.
Bitcoin can help because its supply is finite and therefore limited. According to the Bitcoin Foundation, there will only ever be 21 million bitcoins. Therefore, when the demand for Bitcoin increases, its value also increases. The limited nature of the currency prevents inflation, helping to reduce global poverty. Unlike most national currencies, central banks cannot control Bitcoin either, as it runs entirely on a decentralized blockchain. There are no transaction fees, which helps poorer people in developing countries to increase their return on investment without additional fees. Cryptocurrencies allow even the poorest people to make investments over which they have full control. Since cryptocurrencies prevent outside interference in emissions, they create a level playing field for everyone.
That the introduction of a digital currency can indeed have positive effects on the stability of a country is shown by the example of Venezuela. The start of Valiu is helping the people of Venezuela in their fight against hyperinflation.
I'm Simon Chamorro. I'm the co-founder and CEO of Valiu, and we're a product that helps Venezuelans living in hyperinflation protect their money from losing value, receive remittances, and pay locally to buy food and medicines.
Both businesses and consumers are able to exchange goods and services with each other, paying in cryptocurrency.
The vision for us is to increase economic freedom.
Venezuela is known for its political and economic instability. Hyperinflation has caused the Bolivar to lose 99.9% of its value in just two years. Wealthy Venezuelan families saw their fortunes disappear, and the poor were pushed even further into desperation. Simon Chamorro knows this story all too well.
Growing up in Venezuela, essentially whatever my dad and my mom were able to build during their lives was lost. When the economy started to fail, we, for example, had water shortages or like electricity blackouts across the country. Money was starting to get hyperinflated.
This is not like a sad story that I'm trying to tell. This is the reality of most Venezuelans. More than 99% of the Venezuelans lost everything they've built because the country failed. All of the Venezuelans' savings of most middle-class people went to zero.
I knew I wanted to build something. I had to find my purpose. I always knew I wanted to start a company and to build things, which is the reason why I studied industrial design with the hypothesis that I was going to be able to build things. I didn't pursue that career, but I learned a lot of things that got me into tech. So I found crypto through tech. I felt passionate about the technology, and then when I understood the potential of crypto, I realized that Venezuela is potentially the best place to do this at a massive scale.
The reality is, if we deconstruct cryptocurrencies, the most basic thing is that it helps disintermediate, and this may have the possibility to change society as we know it. The main problem Venezuelans are going through right now is hyperinflation. Hyperinflation is just a byproduct of total mismanagement of the country.
Venezuela's descent into an impoverished dictatorship put the devastating effects of hyperinflation on full display for the world to see. Lines for basic needs, extreme shortages of food and medical supplies, civil strife, violence, and the citizens spared were the ones who could move their currency out of Venezuela to other more stable currencies like the US dollar, a luxury mostly saved for the ultra-elite. But Simon's platform Valiu promises the opportunity for everyday Venezuelans to protect themselves from hyperinflation by way of cryptocurrency. And according to him, the unstable conditions of his country are the perfect breeding ground for such an experiment.
Nobody trusts the currency or the government. People are looking for solutions. In a place where people are trying to survive, the barrier of trying new things is much lower. So digital dollars, stablecoins, cryptocurrencies, people are going to be willing to try it with a little bit of money and then slowly kind of get there.
Our main objective right now as a company is to enable merchants to accept digital dollars as a minimum of payment. And so people have to use the bolivar less and less. We're focused on building a product that serves from the richest person with a lot of education and technical literacy from the lowest income person with very low education and low technical literacy. In a country like Venezuela where the minimum wage is $1, you have a situation where most people are starting their own little business selling hot dogs or selling the local food called arepas or whatever they do, but they sell it to their community and you have these hyper-local communities. So we want to help them accept payments in dollars, in digital dollars, in stablecoins, and then onboard users. The more consumers that pay in dollars, the better for the merchants. The more merchants that accept it, the better for the consumer.
So far we've moved millions of dollars. We've helped more than 150,000 households, 30,000 monthly active users, and it's working. The reality is that economic freedom is only directly tackled by the innovation that is cryptocurrencies.
But we can't forget that Venezuela has tried this already. El Petro was a proposed cryptocurrency backed by the country's most abundant resource, oil. While El Petro was widely considered a resounding failure, many experts agree that the experiment was a necessary step in establishing cryptocurrency for the future. And Simon is convinced that its foundations, namely blockchain technology, remain stronger than ever and ready for another, more practical iteration.
Blockchain is really a paradigm shift for the human race. It's one of the most important things that has happened in recent history. What you're starting to see is companies starting to completely build their products on top of this blockchain. It's almost like it's creating its own economy.
If there's a way to provide more stability and economic freedom and financial freedom to Venezuelans without crypto, I would rather for that to happen than for me to be successful with a product that doesn't bring value to the people.
Bitcoin operates outside the current financial system. That is, there is no central authority, since it is not yet possible for governments and banks to interfere with Bitcoin transactions. This means that people cannot be discriminated against when using the currency. Cryptocurrencies are also very secure and difficult to steal, which further limits potential corruption. One problem with external aid, however, is making sure that the money ends up in the hands of those who desperately need it. For example, much of the $130 billion that the United States has paid to Afghanistan since 2001 has been diverted by Afghan leaders. Corrupt governments that claim such aid for themselves are a particularly common problem with several African countries. The use of Bitcoin and its ability to prevent corruption can help reduce this problem.
Do you doubt that the US will make a similar move? What's your take?
Well, I think what we've really seen now is quite a few projects underway both in the US and abroad where central banks are beginning to explore the development of their own digital currencies. So we've seen that in places like China. We've seen the development of the Digital Dollar Project beginning to get some traction here in the US. But ultimately this is not necessarily something that should be construed or understood to be a competitor with decentralized protocols like Bitcoin. But rather I do see in the future that we will see sovereign currencies, fiat currencies, do, you know, make the move onto a, you know, blockchain-based system.
So how is this uncertainty impacting where you're placing your bets? I mean, do you have any plans to pitch a tent on Bitcoin Beach in El Salvador anytime soon?
You know, I think this has been a really interesting time in the market. You know, seeing moves like what we're seeing in El Salvador, seeing an environment where we have some of the world's most followed, most famous investors publicly coming out in support of Bitcoin, seeing, you know, major corporations begin to add Bitcoin to their balance sheets. You know, this is an environment unlike we've ever seen before around this asset class. And I certainly think the last 18-plus months for many people in the investment community have really solidified the staying power that digital currencies now have, and investors are now, you know, waking up to the potential that they can provide to their portfolios.
Now, I just spoke with Coinbase co-founder Fred Ehrsam of the crypto venture capital firm Paradigm, who's legitimately concerned that China will surpass the US in crypto, and especially when it comes to regulation. What do you think?
Well, I think what we're seeing here in the US is a regulatory regime that has been very in tune with cryptocurrency, and, you know, certainly firms like Grayscale are a really strong example of a firm that's working within the asset class but also within the existing regulatory framework. And what you're seeing is now guidance that has really given investors the confidence they need to approach and be involved in the asset class, whether it's SEC, CFTC, IRS, Treasury, FinCEN, you name it. And what we have seen in other parts of the world like China is, you know, a stance that I think is a little bit more prohibitive at times around decentralized currencies like Bitcoin. So, you know, to Fred's point, and I do sometimes agree with that stance, that there is a little bit of, you know, perhaps an arms race around this as to which countries and which regulatory regimes are going to be most accommodative to the innovation that's taking place around these types of assets and ensuring that the companies and the people that are using them, you know, kind of get that first-mover advantage. So there is some element of time being of the essence around some of those initiatives.
Well, and speaking of that, we're expecting an SEC decision in the near future on Bitcoin ETFs. That decision was expected this week. It was pushed. Where do you expect that decision to land?
Well, you know, we've been engaged with the SEC on Bitcoin ETFs dating all the way back to 2016. We are 100% committed to converting our flagship fund, Grayscale Bitcoin Trust, into an ETF when the regulatory environment is ready to make those kinds of approvals. And from our engagement with regulators and our seat within the financial services and crypto communities, we're really encouraged by a lot of the progress that's being made. But I think the SEC has been very, very clear that there are certain aspects of the crypto ecosystem that they're looking to achieve a certain level of maturation. And so they're trying to ensure that these markets, inherently, before they approve products around them, are void of manipulation, have surveillance-sharing agreements in place in the spot market, and ultimately may have some of the same types of investor protections in place that they may have around equities and other asset classes that they also oversee. So while we're certainly making progress, it, you know, I think clearly we're not quite there just yet.
Now obviously there's been a ton of volatility. Are we back on the upswing, or are we going to see some more lows before we get back to a high-up cycle?
Well, I think based on investor demand, we've seen this time and again. We've seen either leverage coming out of the ecosystem that's caused a correction in the price of Bitcoin, or other news or other events affecting the price of Bitcoin. But typically, the investor behavior has been one of using these pullbacks in price opportunistically to add to their positions. Right? If they fundamentally still believe in the same investment thesis, but that investment is now available to them at 10 or maybe 15% cheaper than it was a week or two or a month ago, then investors often use these types of periods of time to really add to those positions and ultimately build, you know, a diversified portfolio, you know, when you see those pullbacks.
What do you think of Elon Musk's latest comments? I mean, does the whiplash bother you, saying one thing then saying another?
Well, you're talking to someone that's been around crypto for about eight years now, and so I've seen no shortage of movements in the crypto price. But I do think some of the commentary that Elon Musk has made has really been focused on ESG and some of the carbon footprint and energy consumption concerns around Bitcoin mining. And I think when it comes to that, it's really important that we stick to the facts. You know, I think the latest statistic is about 75% of miners are using renewable energy as part of their energy mix. So that could be hydro, that could be, you know, wind, it could be solar. And it's important to zoom out a little bit, Emily, and realize we're only 10 or 12 years into the life cycle of crypto assets. And so it definitely stands to reason that this is an opportunity for this industry to continue to innovate, continue to reduce its carbon footprint, and ultimately kind of rise to the challenge that's being presented to it.
How should we think about this then, the biggest test for Bitcoin being adopted as legal tender?
You know, this is an exciting moment for the cryptocurrency community because, of course, this is what they said will happen, right? I mean, you know, El Salvador, it's not, you know, at the center of global finance, but still this is the first test for Bitcoin. They will be very excited about this, and, you know, this isn't something that has ever been done before. So just for that reason, I think this is very exciting.
How much of a worry are we that this is going to be a buy-the-rumor, sell-the-fact event? El Salvador only has 400 bitcoins. It's not very much. So, you know, $20 million worth. What's the expectation from here?
Yeah, I think that is a risk, and there was this push from the Reddit and Twitter community to say, look, let's go out and buy Bitcoin on, you know, on the 7th of September, on today, so that they can get out there and push the price higher. But I mean, we've already seen the price rally 40% since that announcement was made. So I think there is a risk here that, you know, the air gets let out of the rally somewhat. I do think, however, that there's a lot of exciting things happening right now in the crypto space, and one of them is also a US ETF potentially coming. So there's just signs that it is being adopted more widely, and I think that will be exciting for the market.
Now, now paint a picture for us, Eddie, as to what it really means if a country adopts this as their currency, because I was looking at photos of cash points.
But you go to the cash point to change your Bitcoin into dollars. So you still spend US dollars on the street. Is that how this still works?
Well, it's a two-tier system. In El Salvador, what they want, they want most people and big retailers to accept Bitcoin. So you would be able to go there and use your cryptocurrency wallet and pay directly. But then also, for smaller retailers that are not able to do so, they will be exempt. But for the most part, I think most retailers will have to accept it. It's worth noting that it is not a very popular law in El Salvador. Surveys have shown that a lot of people want to see this repealed, but there are good reasons for this, particularly around remittances.
Thank you very much, Eddie. Really good to get your perspective on these stories. Eddie Vandervelt joining us there from the Markets Live team.
Bitcoin and the world of cryptocurrencies continue to be a much discussed topic as more and more people around the world become interested in their potential. For people in countries that lack financial stability, cryptocurrencies could be a viable solution. With this ability to stop corruption, prevent discrimination, and avoid inflation, Bitcoin has the potential to have a major impact on global poverty.
Brock Pierce, chairman of the Bitcoin Foundation, spoke in an interview about Bitcoin's continued growth and current problems. This is because especially for people in rural areas, it is mostly impossible to make digital transactions even today.
Brock, you were mentioning that you've worked with so many other countries as well. You've spent time in El Salvador. Can you talk to us a little about what you're hearing in terms of other countries that are thinking of adopting this by way of El Salvador as well?
Well, seeing how big a massive success this El Salvador launch has been in terms of the impact it's having on financial inclusion, I'd say a lot of governments are curious. Obviously, I'm not here to make decisions or advise them per se on what to do. I'm there to give them the information so that they can make decisions in terms of what they think is best for their country. But I'll tell you, there's a lot of interest. There is a lot of curiosity. I've got, I think, 35 presidents in a queue right now. I literally can't move around the world fast enough to give them all of the information that they need. And I'm meeting with the ministers, the heads of the central banks. I'm meeting with the business leaders, the banks, the private sector. There is a great deal of interest because of the things we talked about. And now that there is a success and data doesn't lie, I think that this is going to be a trend. I think that you're going to see a lot more adoption and acceptance from governments around the world, especially in the emerging markets.
Brock, I'm really curious about what you think of this idea of so many people not even having access to 5G, internet, and mobile services. I mean, there's still a barrier here to get access to Bitcoin as a currency if you don't have the infrastructure to do that. And that's a problem here as well as in emerging markets. How do you think about that issue when we're transforming this economy to a digital economy?
So you need connectivity. It doesn't need to be, you know, 5G, but yes, there is a problem of connectivity around the world. It's not in cities. It's typically in rural areas because it's expensive using land-based connections to reach people where there's small populations. From a business perspective, it's not profitable. Now the good news is with things like Starlink and satellite systems using air and space, we are finding mechanisms or methods of delivering connectivity to rural areas, and we are not that far away from everyone having access. So it's coming. It's a separate lane in terms of major problems in the world that need to be solved, but the good news is it is being solved.
But the launch of the world's largest cryptocurrency got off to a bumpy start in El Salvador. Bitcoin plunged about 17% within an hour, falling to nearly 43,000 before recovering about half its losses. The Bloomberg Galaxy Crypto Index, which lists some of the largest digital coins, lost as much as 19% at times. The reason for this, according to Stefan Olette, managing director and co-founder of FR&T Financial, was mysterious sell-offs, or sell-offs for which a legitimate reason is only found after a considerable amount of time. These are much more common with cryptocurrencies than with other asset classes. The crypto market remains far more opaque and global than most, if not all, other asset classes.
Billionaire Mike Novogratz, chief executive officer of Galaxy Digital Holdings and a longtime crypto enthusiast, said the market for digital currency and coins in particular has been surging and oversold over the past eight weeks. Interest from individual investors has skyrocketed due to large institutions now investing in cryptocurrencies.
Mike, you are known to buy the dip. So what are you buying and how much of it?
Well, listen, I think there's been a big sell-off today. I think we always have to remember that crypto is still a retail-dominated ecosystem, right? We've got institutions that are moving in by the day, and that's creating a lot of excitement, but there's lots of retail money. A lot of it's leveraged. There was about $4 billion of liquidations that happened in a short period of time this morning, right? That's mostly leveraged offshore in places like FTX and Binance. And the market got too long. It got long for good reasons, right? I think in the last eight weeks, there has been a giant realization that crypto is not just Bitcoin being bought as a hedge against bad monetary and fiscal policy. But maybe more importantly, it's Web 3.0. It's the internet of value transfer. And when you see companies like Visa buying an NFT and saying they think digital goods is a big part of their future,
Walmart and Amazon, the two biggest retailers in the world, putting up help wanted signs for crypto engineers and for crypto experts, there's a realization that this is a technology play, and no investor wants to miss the next internet. This is the next internet. And so there was a lot of great price movement, right? We went from 29,000 to 53,000 in Bitcoin, and you know, from whatever 1,800 all the way to 4,000 in Ethereum. Solana, a new level one for most institutions, has burst onto the scene. So I think we just got too excited, and this was a little air being, you know, popped out of the balloon.
All right, Mike, we do want to get your thoughts on Solana, but before we move on to that, I am just curious as to what role, if any, governments then will have in this, because the El Salvador approach was of course much more just straight transactional, and we've seen sort of some of the concerns as to sort of gravitating to a transactional model for Bitcoin and other crypto assets here. If other governments decide to get into this, what role do you think they would play in this environment?
You know, there's two different sides to this, right? Governments are going to be very, very protective of their national currencies, right? Their ability to tax and print currencies is tantamount to them existing in lots of ways. And so I think they'll be okay with payments. You're going to see the rise of stablecoins, right? China's issuing one. You'll see them in almost every major country. You know, basically wrapped versions of those national currencies. And I think things like Bitcoin, which in the West really are being used as store of value, people aren't using it as a transaction currency. I think what's unique in El Salvador is, you know, 20% of their GDP comes from remittances. And so you can see lots of those remittances, people sending Bitcoin back across oceans from the US to El Salvador, and the locals either keeping it in Bitcoin because they're worried about the dollar — remember they have a dollarized economy — or converting it and spending it in the local economy. And so, you know, they're kind of unique in that respect. And we'll see. You know, maybe it gets used as a transactional currency. I've never thought it would be, partly because I think it's going to keep going higher. And why would you spend something that's going to keep going higher?
Well, could you argue though, why would you spend on something on days like today where 10 minutes later it drops 10%? You know, could you make the case that like you were hinting at,
