Peter McCormack is a big believer in Bitcoin. “I think decentralization has been proven in the case of money to be a better way to govern money than through central banks,” he told Forkast.News in an interview for the Bitcoin & Beyond Virtual Summit. He’s been seriously invested in Bitcoin since 2017 and listened while people spoke of how fiscal issues like quantitative easing and inflation — as well as much more broad societal issues — could be addressed through Bitcoin.
With inflation at a 30-year high at the moment as the U.S. Federal Reserve announced last week it will begin to taper its bond purchasing in an attempt to address it, it appears many of those concerns have become realized.
“It’s a belief that’s become more entrenched in time,” he told Forkast.News in an interview for the Bitcoin & Beyond Virtual Summit.
As the host of one of the most popular podcasts in the space What Bitcoin Did, McCormack has become a thought leader in his own right and watched Bitcoin grow from strength to strength in the intervening years as institutional and retail adoption has continued to push it to ever-higher prices. But El Salvador’s adoption of Bitcoin as legal tender this year captured his imagination, marking what he sees as a turning point in the history of Bitcoin and cryptocurrency. He’s now working on a documentary on the subject which is expected to be released by the end of the month.
“This is a game-changer. We have a nation-state wanting to adopt Bitcoin,” he said, reflecting on when he heard El Salvador’s president Nayib Bukele announced a bold new plan for the country at the Bitcoin Miami conference in June. Despite the short turnaround time, three months later on Sept. 7, El Salvador became the first country in the world to adopt Bitcoin as legal tender, and McCormack has been watching the journey the whole way.
“Right now, I think on almost every single measure, it’s a huge success,” he said.
The obvious question now is, which country is going to be next?
The first-mover advantage
McCormack is not alone in his concern over inflation driving him into Bitcoin. As government stimulus ramped up to ward off the worst impacts of the pandemic-led recession, many investors turned to Bitcoin as a hedge against the coming inflation. This was a driving factor to the strong growth in Bitcoin’s price seen over the past 18 months. Hedging within the system is only one benefit to Bitcoin, says McCormack, who sees a non-sovereign currency outside the control of government as the only solution to broader, systemic issues.
“Everything that’s happened over the last year or so, especially, it’s made me realize we need an option out,” McCormack said, “we need a form of money that nobody else controls to compete with traditional money, so we have a choice.”
This is where a tension exists with some in the community of the contradiction of a state actor adopting Bitcoin as legal tender. But ostensibly, the decision for El Salvador to make such a move was to help address several issues in the country that Bitcoin, or at least cryptocurrency, is uniquely positioned to do.
El Salvador is a poor country; an estimated 70% of its 6.5 million residents do not have access to a bank account. Requiring only a mobile phone and a bit of know-how, a Bitcoin wallet has a much lower barrier to entry than a typical financial institution and the technology is being heralded as a way to address unbanked populations around the world. In 2019, almost US$6 billion, or 20% of El Salvador’s GDP came from international remittances from expatriates working abroad — one of the highest ratios in the world. This means a huge amount of the country’s and citizen’s money is being lost each month in remittance fees to international intermediaries. As a borderless payment system, transfers made in Bitcoin would keep much of those earnings in people’s hands.
It was an inauspicious start to the project, however, with the price of Bitcoin dropping more than 10% in the wake of the adoption, marking the start of a nearly month-long downturn for the currency. Despite the promise to airdrop US$30 worth of BTC to anyone who downloaded the government-backed “Chivo” wallet — Salvadoran slang for “cool” — uptake proved slow to begin with as technical troubles plagued the first few days of deployment.
By the end of the month, however, according to Bukele, more than 2.1 million Salvadorans were actively using the app, making it more widely used than any bank in the country. McCormack says he has been impressed by seeing large corporations from Starbucks to McDonald’s accepting Bitcoin in their stores throughout the country — not only for the infrastructure in these individual stores, but also for what it means for these global corporations to be able to make such a massive pivot in the space of just three months.
He said the same thing of the Salvadoran people. “If you go down to El Zonte, where this all started, you go up to speak to people about Bitcoin and they understand it, they’re learning about it, they’re improving their knowledge,” he said. “That surprised me how quickly that’s happening.”
El Zonte is the name of a town that since 2019 has been the epicenter of Bitcoin in El Salvador. Started by two Bitcoin entrepreneurs in the small coastal town that did not even have a bank, “Bitcoin Beach” as it became known was an experiment to see how much of the town could be supported by a circular Bitcoin economy, becoming a hub for tourists and Bitcoin enthusiasts in the process.
In the days after the adoption, Forkast.News spoke with Alex Shipp, chief strategy officer of private decentralized finance platform Offshift, who was in El Salvador at the time. He said in the week after September 7, while there were plenty of people using Bitcoin throughout El Zonte, that wasn’t necessarily true for the rest of the country. “There’s no one in San Salvador (the country’s capital) that uses Bitcoin,” Shipp told Forkast.News in September. “There’s no businesses there that are accepting purchases in Bitcoin, even on the seventh or eighth [of September].”
With 2.1 million wallet addresses, it seems as though the use of Bitcoin has picked up a lot since then.
Will it work anywhere else?
Unfortunately, El Salvador is far from the only country with a significant unbanked population, whose people must operate within an existing financial infrastructure that does not suit their needs. Many people from developed economies might view Bitcoin as purely an investment vehicle, but others regard it as able to bring about much-needed changes to global financial systems.
“The core change that Bitcoin will bring is emancipation from financial patriarchy,” Anita Posch, who sits on the board of Bitcoin Austria, told Forkast.News ahead of the Bitcoin & Beyond Summit. Posch uses this term not just in regards to women, but all people of the world who are living under the U.S. economic hegemony, tied to its laws, regulations and politics. “Bitcoin can help us to gain much more self-sovereignty, not only on a personal level but also on a nation-state level.”
After spending time in Zimbabwe, Posch sees it as a perfect example of a country that could benefit from Bitcoin’s non-sovereign status. The African nation of 14.8 million saw inflation reach over 500% last year, according to data from analytics site Statista — second only to Venezuela for the highest rate of inflation in the world. Calling the banking system in the country “completely broken,” Posch describes how the government is constantly changing between the U.S. and Zimbabwe dollar constantly, leaving people locked out of their accounts and holding worthless currency.
It seems as though some in the government in the country agrees with Posch; since she spoke with Forkast.News it has been reported that the government is beginning to look more closely at adopting cryptocurrency itself for these same reasons. A top government official said crypto adoption is “unstoppable” in the continent which has seen a 1,200% increase in adoption in the past year. The report did not mention which cryptocurrency the government is looking to adopt, only that it is in talks with the public and business leaders in developing a policy to make crypto legal tender in the country, though no exact time frame was given.
Describing Bitcoin as “frictionless, global value sending infrastructure”, Posch says having a form of money that operates quickly, cheaply and under the same rules across the globe would allow everyone to participate more equitably in the global financial system. Of course, this means there are different drivers for adoption in regions of the world. “As we see here now in emerging countries, the use of Bitcoin is different to it in Western countries and there will be different applications on top of it in Africa or in Europe,” Posch said. “And I think that’s great because we have one global fairness protocol, and on top of that, we will see innovations.”
Bitcoin as an investment vehicle might be important for the individual and to drive further adoption, Posch would prefer to focus on the people whose lives could be more significantly impacted by Bitcoin. “I find it’s more important to educate people [in] African regions and Latin America and the use cases there,” she said. “Bitcoin has many use cases, but helping people to gain more freedom, to empower their human rights and free themselves from corruption … that’s really life-changing and very important.”
The pushback
Of course, not all of El Salvador was happy with Bukele’s plan. Citing concerns over Bitcoin’s volatility, its technical complexity and the nature of how the bill was passed by Bukele’s party, numerous protests against the adoption have taken place over the past few months. Protests were held outside the National Assembly in the lead-up to the bill being passed, and in the week following the adoption, there were widespread protests marking the country’s 200th anniversary of its independence during which at least one Chivo ATM was set on fire.
The protests on the anniversary were not directed at Bitcoin explicitly, however, being organized to demonstrate against a host of grievances with Bukele’s government, saying that he has too much power, including wielding too much influence in the courts.
McCormack says the protests directed at Bitcoin specifically tend to be small, with less than 500 people and even they are more anti-Bukele protests than anti-Bitcoin specifically. “[The protestors] might say they’re anti-Bitcoin, but they’re not, they’re really people who are anti-Bukele,” he said. “They don’t like Bukele, they don’t like his policies, they fear he is authoritarian. And really, I think if he’d have banned Bitcoin, they would have been protesting to have Bitcoin made legal. I just really think every Bitcoin protest was really a Bukele protest and had nothing really to do with Bitcoin.”
Bitcoin’s strong recovery from its price dip after the adoption surely gave Bukele some breathing room with his critics, as it has continued to gain in price, setting a new all-time high of US$68,641 on Tuesday. This marked the second time the world’s leading cryptocurrency had broken new ground in the past month, signaling a strong recovery from the market-wide crash in May which saw Bitcoin lose over 40% of its value within a month. With the price recovery, Bukele’s plan to bullishly “buy the dip” which he announced while Bitcoin’s price was collapsing in the wake of the adoption.
El Salvador currently owns 1,120 BTC according to the site BuyBitcoinWorldwide, with a total value of US$76.3 million at press time.
Obviously in favor of the move, McCormack is aware the narrative would be very different right now had the adoption occurred during an extended bull market, which would have seen the value of millions in public funds bottom out. But of course, as a nascent asset class, cryptocurrency is volatile and investors of all levels must be aware of that.
For Bukele, it was clearly worth the risk.
“And then you have all of the problems with the current monetary systems,” he told McCormack in an interview for his podcast. “The Bitcoin system is so perfect, that I think it’s going to be the future. And it is a present already in a lot of things, but it’s going to be way bigger in the future. El Salvador has not been the country that’s recognized to be the first in innovation. But why not this time? So, being the first country adopting Bitcoin as a legal tender? It’s a good thing for our country.”
Bitcoin was only created in 2009, so it might be a little early to begin writing the history of it, but when looking back at some key moments in its history, from ill-fated Mt. Gox and Silk Road in the early days to more recent events like MicroStrategy’s investments and the bull runs of 2021, McCormack believes El Salvador’s contribution will be an inflection point for the cryptocurrency.
“El Salvador being brave to do this will be an important chapter in the history of Bitcoin,” he said.
McCormack and Posch are featured speakers at tomorrow’s Bitcoin & Beyond Summit sponsored by Forkast.News and AAX. To attend this virtual event starting this Wednesday, Nov. 10 at 9 a.m. HKT (Tuesday, Nov. 9 at 8 p.m. EST), register here.
