El Salvador may be broke but it’s still throwing $200M at Bitcoin Beach
El Salvador’s government has earmarked $203 million for infrastructure improvements near the so-called “Bitcoin Beach” in the region of La Libertad.
The news is curious in the context of El Salvador’s plummeting creditworthiness, major delays in bond offerings, sovereign debt at 40 cents on the dollar, repeated warnings from the nation’s largest creditor to reverse its adoption of Bitcoin as legal tender, and escalating gang violence that prompted the country’s president to threaten starvation for gang prisoners.
El Salvador’s President Nayib Bukele claims that La Libertad will use the cash injection to build a shopping center, parking area, beach club, and treatment plant in a 15,000 square-meter area. Bukele’s administration also plans to expand 21 kilometers of highway in “Surf City” to four lanes.
Administrators heralded the use of hydraulic concrete, which comes with a higher upfront cost but lasts longer than asphalt. How much of the $203 million is attributable to the marginal expense of better concrete was not disclosed.
Other improvements included new bike paths and improvements to drainage systems and bridges. In all, Bukele aims to support tourism in the pro-bitcoin region.
El Salvador has lots of money for Bitcoin Beach
Bitcoin Beach predates President Bukele’s efforts to roll out bitcoin as legal tender. By 2019, an anonymous benefactor had been donating to the non-profit Mission Sake’s Community Build and routing significant funds into El Zonte in La Libertad to develop the town’s bitcoin infrastructure.
As the Bitcoin Beach app proliferated onto residents’ mobile devices and merchants installed point-of-sale terminals accepting bitcoin as a payment method — luring foreign bitcoiners as tourists — the town earned the nickname “Bitcoin Beach.”
Read more: Bitcoin ATM startup sues former exec over botched El Salvador launch
Promoting tourism by foreign bitcoiners is the target
Bitcoin Beach quickly rebuilt its tourism industry after the COVID-19 pandemic hit. Bukele attributed the tourism rebound to El Salvador’s crackdown on violent gang activity, great surf, and visits from foreign bitcoiners. El Salvadoran tourism minister Morena Valdez added that the country’s other responses to COVID-19 helped boost confidence among tourists.
In 2019, very few people in the El Zonte region had access to mainstream financial infrastructure. Now residents can pay for essentials like food and utilities using bitcoin over the Lightning Network.
Morena Valdez praised Bitcoin Beach’s contribution to the tourism industry, saying that visitors to the El Zonte region who are interested in bitcoin spend more money and stay longer. She barely seemed phased by criticism of El Salvador’s rollout of bitcoin as legal tender. She said that the initiative helped boost the tourism sector.
Bitcoin (and Tether) bonds delayed
El Salvador’s so-called bitcoin bonds, which also accept Tether (USDT) for payment, continue to be an issue for Bukele’s government. On August 30, 2022, their issuance was again delayed.
Bitfinex, a sister exchange of Tether Ltd., hesitated to begin the issuance. However, in the next couple of weeks, Bukele’s New Ideas party expects to pass legislation that will clear the way to approve Bitfinex as the technology provider for the bond issuance.
Bukele’s bitcoin bonds and Volcano Tokens faced pushback from the International Monetary Fund (IMF) and Banco Bilbao Vizcaya Argentaria (BBVA). BBVA’s William Snead expressed doubt that Volcano Token would ever launch. The IMF previously called on El Salvador to reverse its decision to make bitcoin legal tender.
Despite the uncertainty, Bitfinex and Tether CTO Paolo Ardoino expressed confidence that Volcano Token would launch in mid-September and that it could raise the full $1 billion goal. El Zonte Capital chief Stacy Herbert, the wife of bitcoin evangelist Max Keiser, mentioned that some people seem impatient for the Volcano Token to launch.
Read more: Will El Salvador default on its debt because of Bitcoin? Markets say yes
Bitcoin Beach remains a focal point for bitcoin adoption in El Salvador. To date, adoption has been disappointing, with just 20% of residents continuing to use the country’s Chivo app after spending their free bitcoin incentive. Worse, just 1.6% of international remittances to El Salvadoran recipients used bitcoin despite the government’s promises that it would lower remittance fees.
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