Nayib Bukele sure ain’t your average politician. The president of El Salvador, when confronted with an accusation of becoming a dictator, changed his Twitter bio to “Dictador de El Salvador” (Dictator of El Salvador), and later spiced it up to “El Dictador más cool del mundo mundial” (The coolest dictator in the world). In doing so, he turned a serious accusation into a meme.
Bukele is able to leverage the disintermediating qualities of modern media to the fullest: his intention to make Bitcoin the El Salvador’s legal tender was first announced through Jack Mallers’ livestreamed talk on Bitcoin 2021, making an instant connection between himself and hardcore bitcoiners. To reinforce this position, he later joined Nic Carter’s Twitter Space to livestream the passing of the Bitcoin bill in parliament — and nonchalantly coining the “volcano mining” meme during the live chat as well.
Giving “presidential advice” to buy the dip, taunting the IMF, and pulling the mammoth feat of deploying the Chivo wallet and hundreds of Bitcoin ATMs in such a short time frame — it truly is tempting to become infatuated with someone so fresh and seemingly on our side.
But this is still politics we’re talking about. Bukele is buying the dip with taxpayers’ money. How will the public react to a prolonged bear market? And who holds the keys anyway? What’s going to happen to the nation’s bitcoin when the political tides shift?
The last question might be sadly rhetorical. As Alex Gladstein of Human Rights Foundation explains in a must-read article on the Salvadoran political contexts, there might not be any change of guard for a long time. Bukele seems to be consolidating power at an alarming pace, using the same agility in leveraging his massive short-term popularity as he displays in his Twitter gimmicks. As students of history are well aware, a charismatic leader consolidating power is bad news when the honeymoon period ends and the first crisis strikes.
But let’s zoom out from El Salvador’s president and consider the broad problem of governments acquiring Bitcoin. This development, previously considered a bitcoiner’s wild dream, is becoming a reality — next to El Salvador, Iran’s central bank is already “stacking,” while Laos, Paraguay and Ukraine seem to consider doing so in the near future. This opens up the question of whether such top-down bitcoin adoption actually benefits the country’s population rather than its ruling class.
The main advantage of governments leading the way on bitcoinization is the shift in public perception — the general public still considers the state a legitimate organization, and adding weird magical internet money onto the balance sheet of a state institution would work wonders in terms of Bitcoin’s perceived legitimacy. Moreover, doing so would require regulation that isn’t openly hostile to bitcoin, and thus could pave the way for private institutions having a legal treasury reserve policy involving bitcoin as well.
Another positive impact might be brought about by the government actively incentivizing foreign bitcoin-centered investments and residency, e.g. through elimination of capital gains taxes. A small third-world country previously cut off from the global financial system may thus become a “new Switzerland” of sorts, if such policy is understood as being trustworthy in the long-term.
For many developing countries, legal tender legislation coupled with a national hodling strategy might be their way out of the IMF/World Bank serfdom and the damaging consequences of being on the receiving end of foreign monetary policy, as is the case with dollarization.
However, all of these possible points in favour might be outweighed by the negative consequences.
First of all, the state is generally a very bad steward in all financial matters. Almost every government on Earth is up to its ear in debts, however large their tax base. The Leviathan is an ever hungry beast that not even bitcoin will satisfy — it could be the case that the national hodling policy would only stir its hunger for more and motivate confiscations of privately held bitcoin.
Second, the risk and lure of embezzlement, hacks, or other forms of “boat accidents” would be enormous. “Whoever holds the keys, holds the bitcoin” takes a new level of meaning in such a context. Countries could go bankrupt via simple key mismanagement, and corruption would reach staggering levels. Civil wars could be sparked by national treasures lost overnight.
Bitcoin and the state are polar opposites. The only role the government should play in bitcoin adoption is stepping aside and letting the people adopt bitcoin on their own terms. The proactive stance of Bukele’s government may reap short-term benefits outweighed by long term risks. Let’s hope the “world’s coolest dictator” has some wise advisors proficient in economic history to help him understand how to do more good than harm. Mr. Bukele, tear down the buy wall and let the people buy the dip!