El Salvador President Nayib Bukele
Photo: Alex Pena/Anadolu Agency via Getty Images

El Salvador’s bitcoin experiment is becoming a foreign policy crisis

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Wednesday: naked bitcoin in El Salvador, #ChangeTheCode, and the Axie Infinity DeFi hack.

Off the chain

Can you hear them?
They talk about us
Telling lies
Well, that’s no surprise

The Go-Go’s play Crypto.com Arena in Los Angeles today. That’s it, that’s the tweet.

— Owen Thomas (email | twitter)

Bitcoin is policy by other means

El Salvador’s embrace of bitcoin won praise from the crypto world. But it also set off alarm bells at home and abroad. Those bells are now ringing in the Capitol, where the Senate Foreign Relations Committee is asking just how dangerous the Salvadoran bitcoin experiment could become.

Bitcoin is now a foreign policy concern. The committee passed a bill, Accountability for Cryptocurrency in El Salvador Act, that would direct the State Department to evaluate the risks of El Salvador’s bitcoin policy and draft contingency plans. It has bipartisan support.

  • Sen. Bill Cassidy of Louisiana argued that bitcoin as an official Salvadoran currency “opens the door for money-laundering cartels and undermines U.S. interests.”
  • It could “weaken U.S. sanctions policy, empowering malign actors like China and organized criminal organizations,” warned Sen. Jim Risch of Idaho.
  • The senators, including Bob Menendez of New Jersey, also repeated warnings about financial instability and risks expressed by the Bank of England, the World Bank and the IMF.

El Salvador’s president says he trades bitcoin naked, and we don’t think he’s talking about his hedging strategy. It doesn’t help El Salvador’s case that its bitcoin policy is being pushed by a quirky “authoritarian hipster” president with a controversial reputation.

  • Salvadoran President Nayib Bukele said he never expected that the U.S. government “would be afraid of what we are doing here.”
  • The dollar was the country’s sole legal tender starting in 2001; bitcoin now sits as an alternative. Remittances are important to the country’s economy, and the high costs of money transfers are one of Bukele’s stated motivations for the bitcoin move.
  • Cassidy triggered an entertaining Twitter exchange by arguing that Salvadorans in the U.S. oppose the policy. A 2021 poll also found that most residents of El Salvador don’t want bitcoin.
  • “Perhaps they don’t trust a president who brags about trading Bitcoin ‘naked,’” Cassidy quipped, referring to another tweet where Bukele bragged about how he trades Salvadoran bitcoin on his phone. Sometimes, Bukele responded, he even does it “while in the toilet.”
  • Beyond his toilet trading, Bukele isn’t exactly viewed as a paragon of good governance. He’s meddled with the country's judiciary and reportedly cut deals with notorious gangs.

El Salvador is a test case, in many ways. Is the Senate proposal overblown? “It isn't like El Salvador moves global currency markets,” Stanford Graduate School of Business lecturer Rob Siegel told Protocol. But then again, bitcoin was considered small and irrelevant once too. El Salvador’s bitcoin infatuation could set a dangerous example for other countries that dislike their dependence on the dollar. The real goal may be to “nip in the bud” anything that puts the greenback’s role as the world’s reserve currency at risk, Siegel said.

— Benjamin Pimentel (email | twitter)


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On the money

On Protocol: The Greenidge power plant, a bitcoin-mining facility, is causing a ruckus in a small town next to Seneca Lake, and a group of residents isn’t going down without a fight.

Socios signed a sponsorship deal with Lionel Messi. The three-year agreement for Messi to be the fan token company’s global brand ambassador is worth $20 million, according to Reuters.

Also on Protocol: The FTC claims that Intuit deceived customers by promising free filing with TurboTax, when that’s not the case for many of them. Intuit denied the allegations, saying that the FTC’s arguments “are simply not credible.”

Australian celebrities and the government are mad at Facebook, this time over crypto. The country’s celebrities and its Competition and Consumer Commission said the social media giant isn’t doing enough to prevent crypto scams through fake ads.

$620 million in ether was stolen from Axie Infinity’s Ronin network. In one of crypto’s biggest hacks, attackers stole 173,600 ether and 25.5 million USDC from the bridge used for the NFT-based game. Axie-maker Sky Mavis promised that customers’ money would be recovered or reimbursed.

Robinhood is offering more trading hours for investors. The app is extending its trading day by four hours, allowing people to trade from 7 a.m. to 8 p.m. ET daily. The company reportedly has plans to eventually allow trading 24/7.

Apex Crypto obtained a coveted BitLicense. The crypto investing service’s business customers can now let their users in the state of New York trade after it acquired the state’s virtual currency license, which is famously hard to get.

Hashtag of the day: #ChangeTheCode

After climate groups including Greenpeace USA and the Environmental Working Group launched a campaign called #ChangeTheCode, the climate versus bitcoin mining debate heated up again. But some in the crypto community were upset with one person in particular: Ripple co-founder Chris Larsen, who contributed $5 million to the campaign. (It’s worth noting that Ripple promotes the greener nature of XRP’s consensus mechanism, which differs from the more energy-intensive proof-of-work mechanism that most cryptocurrencies use.)

Ryan Selkis, founder of Messari, is not a fan. “Chris Larsen — who in a just society would be in jail for the bad faith investor misrepresentations he and his team made regarding their XRP sales — is spending money attacking the industry that created his ill gotten multi-billion dollar fortune. Judas,” he tweeted.

Coin Center communications director Neeraj Agrawal questioned Larsen’s commitment to DeFi. “Perhaps he prefers a world where CEOs can centrally control the future of a cryptocurrency network,” he wrote.

Jake Chervinsky, head of Policy at the Blockchain Association, opted for the simple and impersonal path, implying that the campaign as a whole was flawed. “Bitcoin will always use PoW, end of story,” he said.

— Lindsey Choo (email | twitter)

Just one question with Shamir Karkal, co-founder and CEO of Sila

Before starting Sila, a payments infrastructure service, Karkal co-founded digital banking service Simple in 2009.

When do you see crypto actually being broadly adopted for payments?

Financial services is a gigantic ocean, so crypto is a very small slice of it. Financial services is just so huge that it takes a long time to change, and you might not notice the change for a while. Crypto for international payments has been happening for a while with companies like BitPesa and BitPay and a few others — a lot more outside the U.S. than in the U.S. There’s that old saying, “The dollar is our currency, but your problem.” It's not that hard to find dollars if you're in the U.S., but in most of the parts of the world there’s demand for dollars, but no way to get them. And that's why crypto, especially stablecoins, has been super useful.

I'll give you one example: I bought a router for the Helium protocol. I bought it from a manufacturer in China, and I paid for it with USDC and I was like, I'm not sure what traditional payment systems could have worked other than cards. I mean, crypto’s not cheap in many cases, especially with gas fees and everything, but often it's actually comparable to and many times cheaper than using cards.


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Thanks for reading — see you tomorrow!

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