Welcome to Bitcoin Beach

as a form of legal tender. Here they approved a bitcoin law in the Assembly that means if you want to pay for something there, you have two currency options, bitcoin or the U. S. Dollar. Since then, President Boo Kelly has bought more than two thousand bitcoins using public funds, and whenever there's a particularly sharp decline in the crypto market, which happens pretty frequently, President Boo Kelly is fond of tweeting that he's buying the dip and adding to those

bitcoin holdings. He doesn't appear to be stressed at all by the market volatility or by the drumbeat of international organizations, including the I m F, who have criticized his crypto decisions. Now he's once again pitching a so called bitcoin beach in the coastal town of El Zante. Joining me today to talk more about the sustainability of El Salvador's bitcoin strategy is report to Mike McDonald. Mike, Hello, Hi Stcy.

How are you? I am great? Well, So you have for Bloomberg been reporting pretty extensively on El Salvador's experiments with crypto and specifically bitcoin. In one of the stories that you did for Markets magazine back in April, you even sort of landed in the country and then spent the rest of your time. They're trying to pay exclusively in bitcoin. Am I remembering that correctly? That's right, That's right.

How did that go? Yeah, so it's it's not really that easy to spend bitcoin widely in El Salvador, is kind of what I found. Um. You can find some places that accept it, um, but you know, it's not really advertised very widely among businesses. I mean you kind of have to go from business to business and ask you accept bitcoin, do not accept bitcoin. Most of them will tell you know that they're working on it. The problems were a lot of the businesses didn't have the

infrastructure set up to accept it. They didn't have wallets to accept bitcoin from customers. In some cases there was no Internet signals, so even if they do accept bitcoin, there's no way for them to actually get the wallet

to work because the Internet signals down. And there were some businesses that also told me that they didn't want to accept it because of the volatility, because they would receive twenty dollars in bitcoin today and it would be worth ten dollars in bitcoin tomorrow or or something like that. So it's not as widespread. There are some businesses that that accepted there were there have been a couple of surveys out recently that show about ten to fifteen percent

of businesses do accept bitcoin in El Salvador. So it has caught on a little bit, but it's not that easy to really spend it. You know, there are a lot of technical problems with the government's wallet. Chievo doesn't always work properly, so some of the businesses that do accept it have actually switched over to other wallets, to third party wallets, which seemed to work a little bit

better than Chievo. So you've said a couple of interesting things that I want to just tease out a little And there has been this idea that if you want to make your country or your state or your whatever crypto friendly you just kind of like wave a magic

wand and voila, like bitcoin is possible. But it sounds like what you're saying is there's actually a lot of you know, fairly challenging operational things that folks have to get over, including to your points, actually setting up the software infrastructure to be able to accept bitcoin, but also things that you can't individually solved, like internet access right exactly. And you know, El Salvador is a country where most

businesses are small and medium sized businesses. There are a lot of mom and pop shops in El Salvador, so for them, the learning curve for setting this up is pretty big, so um a lot of them, you know, they just don't have the technology. The one person who thinks bitcoin should catch on a lot faster is, of course, the country's president, Nai bu Kelly. I don't know what the exciting number, but I would think around five million SAVA build right now. Can you tell us a little

bit more about him? I feel like whenever I see him or he's in a news conference, he's always wearing like a backward flipped baseball cap or you know, trying to emphasize his youthful, millennial nous. But what is he like as a president and what's his perception in the country. Yeah, he's um. He you know, he broke with um sort of two party rule in El Salvador that had you know, there were these two political parties that had ruled the country for a long time, and he broke away from

one of those parties and formed his own party. He came into power as an outsider, promising to change government. Um. You know, he has a bit of a populist stance towards a lot of different policy issues. You know, there are a lot of people on a Salado are really tired of the two party rule and what seemed like gridlock in government, and so he came in promising to break that with this sort of hip new look. He

kind of has this cool vibe. I think even his Twitter feed at one point said like the coolest president in the world or something like that. So, you know, he he is a bit different in the way he governs. He is quite popular in El Salvador. Actually not because of bitcoin, because most of the Salvadorians have said in the surveys we've seen that they don't want bitcoin in the country. But he's really popular because he's built hospitals

in rural areas where there were no hospitals before. He's built schools in rural areas where there's no schools before. You know, he has a lot of social programs and social spending, you know, food rations, monthly food rations for really poor families. He's cracked down on violence and gangs in El Salvador, which is a sort of a top concern among voters. So he's been able to tackle those

issues and not just pushback like protests. Right. You've reported on his political ponents using the opposition to bitcoin in the country as a way to try to re establish themselves a bit. We had some attacks of the opposition. Believe it or not, we have an opposition and they're started, you know, complaining about bitcoin, and they started miss for the misinformation to the people, telling a bitcoin was bad and you know, you shouldn't use that currency because you

know it's invisible, you cannot see it. But they're free to do it. That's good. Also, free countries. They can protest, they can you know, burn a d MS. Fine. We've demonstrated that bitcoin could do a lot of good things.

So the opposition parties have sort of found in this bitcoin issue sort of a rallying call um, if you will, sort of an issue that they can sort of push against blu Kelly with because they know that the population isn't really on board with using bitcoin, at least on a large I mean, there are a few people here and there that you can find that that do enjoy it, but but you know, between sixty and seventy percent of the population, according to the polls that we've seen, don't

like the idea of using bitcoin is legal tender. So it is something that the opposition has sort of grabbed on too and and are sort of using it to push back against his government with. So he's got seventies eight percent approval ratings except for the overwhelming majority of people who are like, please no Bitcoin go away. How much of this is affected by the fact that al Salvador is betting on bitcoin is currently losing the country money.

I think that's a big part of it. I mean, the problem was so in September last year, bitcoin was nearer record high. It was between fifty and sixty thousand dollars a coin, and I think it hit uh Rich reached the sixty nine thousand dollars per coin at one point,

so and it's basically come down ever since then. So, you know, they kind of adopted bitcoin is legal tender almost at its peak high, and a lot of people that downloaded the wallet and started using it have seen their money deteriorated, seen a lot losses pile up, and just there have been reports coming out of Al Salvador where businesses that used to advertise that they accept bitcoin with like little signs in their windows and stuff are

actually taking those signs down. I mean, it wasn't widespreads I don't think it's having a really broad impact in the economy. El Salvador's plans for a billion dollar bitcoin bond sent the nation's dollar denominated debt to an all time low. Investor is worried that President Nayam Bokele is moved to sell sovereign bitcoin bonds closes the door and a deal with the i m F. The fund is repeatedly criticized because it's policies, including the adoption of bitcoin

as legal tender. The other way this is affecting folks, is you know, El Salvador is not super popular with the I m F at the moment, I think that's safe to say, because they were trying to propose this bitcoin backed bond, which would be one of the first, you know, sovereign or state related bonds ever issued that had bitcoin backing on it. That bond has still not

been issued. They've blown past the deadlines that they said they were gonna they do this by You've also reported in the meantime that they may be struggling to make their coupon payments on their other debt that's not backed by bitcoin. So it does seem like this grand experiment has been perhaps more challenging than they were expecting. Right, They have gotten a lot of blowback from the multi ladders,

especially the IMF. I mean, last year they were negotiating an IMF program and when they adopted bitcoin, that really angered the I m F, and the I m F has urged them to drop bitcoin is legal tender um and so that they haven't gotten the I m F program that they announced a year ago that they were pursuing um. You know, that was a one point three billion dollar program. Some of the other multilateral lenders have

been hesitant to lend to them because of this. So there has been a lot of pushback that sort of has prevented them from getting access. The perception among investors is that El Salvador is an extremely risky country to be investing in right now, and there are a lot of questions as to whether or not they're willing to pay.

So the risk perception of government bonds is incredibly high right now, and as a result, the government has has really lost access to international debt markets which could help finance government operations. Thank you so much, Mike. We'll be right back. We're also going to talk about bitcoin beach. So you know, I'm really struggling and I have been struggling with this. El Salvado started for a while in that the Macroe canomic fundamentals don't seem great, the crypto

fundamentals don't seem great. Boo. Kelly's popularity quite good, not so great when you introduce crypto into the equation. But he's plowing ahead with multiple different initiatives and does seem really personally committed to having El Salvador and bitcoin always be associated in a sentence, Can you say a little bit more about what this supposed bitcoin beaches. Bitcoin beach is sort of the pilot project where this all started.

It was kind of a private initiative. It was a private donor that donated some money to this small little beach town in El Salvador called El Sante. It's a really tiny town. It's popular with surfers because they have some pretty big waves there. Um, but you know, it's a small town with really small businesses, a couple of

small hotels. And they started this pilot projects around eighteen where they sort of launched their own bitcoin wallets and tried to sort of incorporate bitcoin into the local economy. And that's kind of where it's kind of where it all started. You know. You go there and um, you know the little you know convenience stores will accept bitcoin in exchange for you know, a can of pringles and and things like that, where you can pay for a surf lesson in bitcoin, um, you know, one of the

local surf instructors. So Bitcoin Beach is kind of where it all started, and and Boo Kelly kind of wanted to take it national nationwide from there. It's just a sleepy little town where this this experiment began and it sort of served as a as a pilot project for what Boo Kelly is doing now, but you are our investor.

There's all over the world when you post something on your Instagram account or in your Twitter, your phrasebook, everybody that follows you, everybody and that admires you, everybody that wants a bill like you. We'll be We'll be seeing our country. I will be seeing our waves and our beaches, and we're seeing all other things we have to offer.

In a sense, would you say the pilot project has been more successful perhaps than the more widespread it option, because it does sound like if I can pay my serf lessons in bitcoin, but if I go into the capital and nobody will take my crypto, I might just hang out in the on the beach all the time. I mean me personally, and I don't know what other

people might do. Yeah, in a way it has been I guess also because Bitcoin Beaches is touristy and it's really popular with tourists um and there's this sort of whole whole marketing campaign that goes along with it, so there is kind of a draw for people who are really into crypto and bitcoin to show up there. So on a small scale and a very tiny town like that, it's popular with foreign tourists that may be more adept at spending bitcoin it. It seems to work a little

bit better. But when you expand it to a national scale and take it to places like Saint Salvator, which is a really large city with lots of different types of businesses, it doesn't really seem to work well. But Bitcoin Beach a lot of the businesses will take it there.

You can buype pooses, which are these little um you know, filled the cheese in in bitcoin at Bitcoin Beach, so you know, some of the small vendors there seem a little bit more comfortable with it, and some of the foreign tourists that come seemed to be a little bit more comfortable with with spending it as well. So it does seem to work a little bit better on a on a much smaller micro scale, in in a place

like Bitcoin Beach. And there are a few different examples around the world of these you know, little crypto on clips, like folks may have heard of zoog in Switzerland, that's definitely one of them. There are absolutely pockets of San Francisco and Silicon Valley where you know, you can get bitcoin or or other kinds of crypto accepted for things. But El Salvador was supposedly the national model for how

accepting a token like this at scale would work. And you know, from everything that you've been reporting and others have been reporting, it does seem that that calculus may have been more challenging than they were expecting. But there are other folks who are like, yeah, but give it time, right, which which is always the conversation. It's always been less than a year. Markets have been historically pretty pretty volatile.

There are other considerations at play, and some of those considerations that folks will mention is, you know, particularly in many lots time economies, as things like inflation, it's worries about the the independence of the central bank, which is certainly an issue in El Salvador. Are you seeing other countries, even if they're a little bit worried about what El Salvadore is going through, thinking about ways in which crypto might make sense for them. Yeah, we are in different ways.

I mean, it's not always that countries are considering doing exactly what El Salvadore is what did, which is adopting bitcoin is legal tender. But there are you know, El Salvador is in kind of a unique position, and that it's a dollarized economy, so it doesn't really print its own money, and so a lot of the inflation is imported from abroad from the US because they can't really control their own money. So line, but you know, there

are different countries. We've seen some countries in the Caribbean start to experiment with not necessarily bitcoin and decentralized finance, but sort of actually centralized crypto central bank digital currencies, stable coins and things like that. There was there's really there was recently a bill passed in in Panama, which is also a dollarized economy, to sort of make Panama a more crypto friendly environment and allow exchanges to come

in and get licenses easily to operate their countries. In Africa, we've seen move to adopt cryptocurrencies as legal tender. So it is something that's spreading, maybe not to the extreme that El salvad Or is where you actually declare one cryptocurrency actual legal tender, but I think it is you know, sort of the fundamentals of cryptocurrency and and sort of

using different sort of blockchain technology in national economies. I think I think there there are technocrats that are looking at it and discussing it and trying to figure out what are the best ways and what are the best elements of this that we can implement in our countries.

So it is sort of an ongoing conversation, especially among emerging market economies, um, you know, especially like all Salvador and Panama and and and countries that you know don't really control their own money supply dollarized economies and and other and other places like that, or places to where

inflation is extremely high. You know, we've seen case in Argentina, for example, where there's really no central government push for cryptocurrency, but there's you know, individuals have sort of taken in upon themselves to get into cryptocurrency just because inflation rate is so high and there are extreme capital controls. In in Argentina, you can only withdraw two hundred dollars a month in U S dollars from a bank. Venezuela is

another example of that. So there are countries in Latin America where inflation is such a problem and currency depreciation is such a problem that individuals are just getting into crypto on their own because they figure, well, I can lose on the national currency or you know, lose or gain ten percent and in cryptocurrency, so so you are starting to see that sort of on on people's personal level.

Pick up, well, thank you that was such an interesting and helpful tour of the reality of what it means to accept legal tender in a country like alsabad or Thank you so much for joining us. Thank you stay. You can find more of Mike's reporting on the Bloomberg Terminal on Bloomberg dot com or follow him on Twitter. He's at m d McDonald. If you've been watching sports lately, and I know many of you have, you may have

noticed something different with your favorite sports teams. From the Miami Heat to the Philadelphia seventy six is America's favorite sports teams are now receiving sponsorships from major cryptocurrency companies. In tomorrow's episode, we'll take a look at these sponsorships and what may happen if your favorite team makes a risky deal with a volatile token. I'm Stacy Marie Ishmael, and this is Bloomberg Crypto, a daily podcast from Bloomberg

and I Heart Radio. For more shows from I Heart Radio, visit the out radio app, Apple Podcasts, or wherever you get your podcasts. Email your questions, comments, and suggestions for the show to Crypto at Bloomberg dot net. You'll find us on Twitter at Crypto. The supervising producer of this episode is Vicky very Galina. Our producer is Mohammed Farouk. Associate producer is Zan Absidiki Desto wonder At is our engineer. Original music by Leo Sidron. Bloomberg's Head of podcast is Francesca Levi