On October 31st, 1517, Martin Luther posted his Ninety-five Theses on the door of All Saints' Church in Germany and set off a chain reaction that ultimately led to the separation of church and state.
This weekend, the President of El Salvador, Nayib Bukele, announced his intention to file a bill in Congress that will officially make Bitcoin legal tender across the country.
Bukele's announcement has set the stage for the separation of money and state.
El Salvador may be a small nation, but it's hard to overstate the significance of a country choosing to adopt Bitcoin as money, especially one that already uses the world's reserve currency as legal tender.
Bitcoin in El Salvador
At this weekend's Bitcoin 2021 conference in Miami, Strike founder Jack Mallers got up on stage to share a video from El Salvador's President making two important announcements:
- First, El Salvador will be making Bitcoin legal tender across the country
- Second, El Salvador will hold Bitcoin as a national reserve asset
These announcements come only a couple months after Strike's incredible launch in El Salvador.
Strike hit the top of the El Salvador App Store rankings within weeks, and is seeing 20,000 downloads of their app every day in the country of only 6.5 million people.
El Salvador already had incredible enthusiasm for Bitcoin, and specifically the Lightning Network as a tool for enabling instant, zero-fee, international remittances. This weekend's events are making front-page news in El Salvador, and will surely take their enthusiasm to another level.
Let's explore some of the potential effects yesterday's announcement could have on Bitcoin and El Salvador.
Bitcoin's Opportunity in El Salvador
First, let's frame the immediate addressable market for Bitcoin in El Salvador:
- El Salvador's nominal GDP was $25 billion in 2020
- El Salvador's national savings rate was 15.6% of GDP ($3.9 billion) in 2020
- 22% of El Salvador's GDP ($5.5 billion) is composed of inbound remittances
El Salvador has almost $4 billion of savings spread across individuals, companies, and governments, and that's roughly the pool of money that is available to suck up Bitcoin supply.
I wouldn't be surprised if $100M to $1B flowed into Bitcoin over the next year.
This would put El Salvador's Bitcoin buying on the same scale as companies like Square ($286M of Bitcoin) or Galaxy Digital ($462M of Bitcoin), but ending the comparison there would be short-sighted.
After all, El Salvador will be using Bitcoin as legal tender too.
El Salvador receives $5.5 billion of remittance payments every year, with billions more lost to transaction fees. Bitcoin has already proven to be a more effective tool for cheap, instant remittances, but once Bitcoin becomes legal tender its use case could expand dramatically.
Instead of using Bitcoin only as a transfer mechanism for moving dollars from abroad, Bitcoin could see real merchant adoption and the development of a circular economy where Bitcoin is used for everyday purchases and for paying employee salaries.
Caitlin Long wrote a great tweetstorm on how Bitcoin's acceptance as legal tender in El Salvador could also eliminate the tax complications associated with selling Bitcoin, and establish it as an asset with similar tax treatment as cash.
The implications of Bitcoin becoming legal tender in El Salvador could have widespread effects on Bitcoin's tax treatment in other countries too.
El Salvador's Opportunity on Bitcoin
To paraphrase John F. Kennedy, it's time to ask not what El Salvador can do for Bitcoin, but what Bitcoin can do for El Salvador.
El Salvador is among the poorest nations in the world, with a nominal GDP per capita of only $4,000 per year, or $300-$400 per month.
Nayib Bukele highlighted the impact Bitcoin could have on millions of people in El Salvador here. A few highlights he mentioned:
- If 1% of Bitcoin supply ($6.8 billion) flows into El Salvador this year, that will increase the nation's GDP by 25%
- El Salvadorans will receive billions of dollars more in annual remittances using Bitcoin, simply by eliminating the payment processors and their steep transaction fees
- 70% of El Salvadorans don't have a bank account, Bitcoin is their opportunity to achieve financial inclusion
As the best performing financial asset of the last decade, Bitcoin has already shown it can generate life-changing amounts of money for individuals and corporations using it to protect their wealth.
Now, El Salvador has the opportunity to show the world how Bitcoin can improve the financial well-being of an entire nation by using it as a reserve asset and as legal tender.
A new era for Bitcoin has begun.
My Writing Last Week
Last week I wrote about how Strike is building a free, instant, and global platform for sending money to anyone in the world.
I also wrote about how DAOs are set to change the relationships that companies have with their governments.
For access to all of my content, annual subscriptions are $6/month for the rest of the week, and will be raised this weekend.