A Bitcoin update from El Salvador

A recent run-up of the price of Bitcoin has Nayib Bukele and all his supporters wanting to say "I told you so."  The price of Bitcoin today is $65,335USD, up 26% from September 6, 2021 when El Salvador's Bitcoin law went into effect.   In between those dates, however, the price had dropped below $17,000 in December 2022, increasing the skepticism around Bukele's Bitcoin gambit.    

Bitcoin price history since El Salvador Bitcoin law went into effect

As the volatile price of Bitcoin started surging again beginning in November 2023, Bukele repetitively posted that he was "still waiting" for the critics of his Bitcoin strategy to admit they were wrong.  Skeptics, myself included, wanted to see the actual financial records and evidence of income and expenses for the Bitcoin project.

On March 14, 2024, Bukele went on X.com to post a screen shot showing 5690 BTC worth $406 million USD that day, being received at specific address on the blockchain. Bukele announced that these were a "big chunk" of El Salvador's Bitcoin holdings and were being put in a "cold wallet." That wallet would be stored in a secure vault somewhere inside El Salvador.

(The value of those Bitcoin has slipped to $372M USD as of the time of this writing as Bitcoin slips down from its all time high earlier in the month).  

Bukele also promised that El Salvador would continue buying 1 Bitcoin per day which he had announced they were commencing in November 2022.

But the bragging about Bitcoin gains led opponents of the regime to ask why the government was putting all that money aside, when schools are in disrepair, when the government owes the national university $52 million, or when the healthcare system is underfunded.

Internet tools let you easily see the holdings at that Bitcoin address and observe movements of Bitcoin into and out of it.  

Closer analysis of Bukele's announcements on X, however, raises a number of questions.  First, 2824 more Bitcoin have now been transferred into that wallet than the cumulative total being tracked by this portfolio tracker.  The portfolio tracker accumulated all of the purchases of Bitcoin mentioned in Bukele tweets since 2021 including daily 1 BTC purchases since November 2022, and Bukele referred to it multiple times as evidence of the Bitcoin profits he was accumulating.   Why did the amount suddenly almost double?   

El Diario de Hoy performed an in depth analysis of the transactions that funded the address publicized by Bukele, and found that 1121 BTC arrived from the "ecosystem of Chivo Wallet" and 4569 came from the company Bitfinex.  Bitfinex is one of the largest virtual currency exchanges and has been closely tied to El Salvador's promotion of a Bitcoin economy.  Bitfinex opened operations in El Salvador in January 2024 to operate under the country's new Digital Securities Law.  

The EDH analysis which shows 80% of the Bitcoin arriving via Bitfinex raises more questions than it answers.  What was the relationship between Bitfinex and El Salvador that gave rise to this transfer?  What was the source of the funds for originally obtaining these assets?  While we know the amount of Bitcoin at this address on the blockchain, who actually owns the Bitcoin?  Were the Bitcoin sent as part of a loan from Bitfinex to El Salvador?  As usual with this government, we have no transparency into these matters, other than we can all see a Bitcoin address with 5690 BTC which Nayib Bukele says represents the country's Bitcoin holdings.

Meanwhile, the country is borrowing money from its pension system at an increasing rate and is incurring more and more debt.

Some of the true believers in Bukele's Bitcoin gambit can be found in Bitcoin Beach. Recently I went on the podcast Live From Bitcoin Beach to have an extended conversation with its founder, Mike Peterson, about some of the reasons I am skeptical and the anti-democratic path the country is on.