Good morning, and welcome to Protocol Fintech. This Wednesday: El Salvador’s Bitcoin Law stumbles, crypto bling and Kraken’s NFT play.
Off the chain
Where was crypto at the Met Gala? You’d think “Gilded Glamour” would attract some of the digital nouveau riche, but on the other hand, paparazzi are bad for the undoxxed. Rapper Gunna was the only attendee sporting notable crypto bling: Fashionistas were too taken by his puppy purse to notice his iced-out Nano Ledger hardware wallet.
— Owen Thomas (email | twitter)
Bitcoin’s debut in El Salvador wasn’t exactly volcanic
El Salvador rocked the crypto world when it became the first country to embrace bitcoin as legal tender. It even promised to mine the cryptocurrency with a volcano’s geothermal energy.
But the bold move hasn’t exactly been a rousing success. Despite a robust government push, including free transactions, a sign-up bonus and gasoline discounts, bitcoin’s Salvadoran debut has been mostly underwhelming, according to a report by the National Bureau of Economic Research.
El Salvador was supposed to blaze the trail. With its “Bitcoin Law,” El Salvador embarked on its grand experiment in September 2021, unveiling incentives to convince its citizens to embrace the cryptocurrency.
- The government of President Nayib Bukele gave citizens who downloaded the Chivo Wallet app, El Salvador’s official bitcoin and dollar wallet, a $30 sign-up bonus, “a significant amount in this Central American country with a per capita GDP of $4,131,” according to the NBER report. The study was based on interviews with 1,800 households.
- Fees were waived for transactions in bitcoin and conversions from bitcoin to dollars through the Chivo Wallet and cash withdrawals at Chivo ATMs. Other bitcoin ATM fees in the country range from 5% to more than 20%, the report said.
- Using bitcoin also means cheaper gasoline for Salvadorans. Bukele announced a $0.20/gallon discount that he later boosted to $0.30/gallon, the report said.
How cool is Chivo, really? Chivo is Salvadoran slang for “cool,” but El Salvador’s bitcoin wallet hasn’t achieved anything close to meme status.
- The report cited official data that said more than two-thirds of the population had downloaded the Chivo app as of January 2022. But it appears that many Salvadorans did so mainly because of the $30 bonus, the report said.
- Less than half of those who downloaded Chivo continued to use it after spending the 30 bucks. The report said a company involved in the development of Chivo reported that there were “only 6-15 thousand transactions per day in the app,” a small number relative to El Salvador’s adult population of about 4.3 million people.
- Why aren’t Salvadorans using bitcoin? Most “do not understand it, they do not trust it, it is not accepted by businesses, it is very volatile, and [outside the Chivo ecosystem] it involves high fees,” the report said.
Bitcoin isn’t making it beyond the beach quite yet. El Salvador became famous for El Zonte, better known as “Bitcoin Beach,” where people use bitcoin to buy pretty much anything. Stacy Herbert, partner at El Zonte Capital, said bitcoin is just getting started in El Salvador.
- The country’s bitcoin adoption numbers “seem extraordinarily high to me if one considers that just eight months ago it was near zero,” she told Protocol. “That is a success story in my book.”
- But Hilary Goodfriend, a graduate student at the Universidad Nacional Autónoma de México who writes about El Salvador, said the country’s bitcoin policies are “largely targeted at attracting foreign investment through fiscal and regulatory incentives.” “Bukele tweets regularly about bitcoin in English to an audience of cryptoenthusists and potential investors,” she told Protocol.
- But wooing international investors and financiers has become tougher, partly because of Bukele’s bitcoin policies. His government’s plan to sell a $1 billion bitcoin-backed bond has flopped. The IMF, World Bank and the Bank of England have warned about financial instability in El Salvador.
Maybe Bukele’s bitcoin push is just about branding, a national marketing stunt. Bukele has recently come under fire for a gang crackdown that has led to “serious human rights violations.” Goodfriend argued that “bitcoinization” in El Salvador is really “a branding exercise aimed at attracting foreign investment as the country’s credit ratings tank and the international community recoils at Bukele’s authoritarianism.” Bitcoin isn’t worth much in a broken economy.
— Benjamin Pimentel (email | twitter)A MESSAGE FROM CHECKOUT.COM
The emergence of DeFi is shaking up the way consumers think about how they store value. For reference, Visa saw $2.5 billion of crypto-backed transactions in the first quarter of 2022. We’re seeing consumers really starting to use this in a way that even a year ago was kind of hypothetical.
From Protocol | Fintech
On Protocol: Kraken is getting in on the NFT craze, announcing that it has opened a waitlist for its marketplace Kraken NFT. Users will reportedly be able to use fiat or crypto for NFT transactions, and will only pay transaction fees when moving NFTs on and off the marketplace.
Dubai’s virtual assets regulator is going into the metaverse. The nation’s new regulatory authority for virtual assets has launched headquarters in The Sandbox, in an effort to make itself “accessible to its industry in their environment.”
The SEC is hiring more crypto cops. The Securities and Exchange Commission is planning to add about 20 investigators to its Crypto Assets and Cyber Unit, beefing up investigations into crypto fraud and other illegal activities in the digital asset space.
Wells Fargo’s software was used in transactions with sanctioned entities. The bank told the Office of Foreign Assets Control that its software was used by foreign banks for transactions with sanctioned entities, and is cooperating with federal agencies for further investigations.
Sen. Cynthia Lummis’ highly anticipated crypto bill won’t address NFTs. The bill will reportedly divide regulatory oversight between the CFTC and SEC and will include the possibility of a CBDC, but will not touch on environmental concerns or NFTs.Overheard
Crypto-friendly U.S. House Rep. Tom Emmer is not down for Gary Gensler’s recent crypto moves, after news broke of the SEC beefing up its crypto enforcement unit. “I wonder how many taxpayer dollars are being wasted in @GaryGensler’s personal crusade against the crypto industry?” he tweeted.
Ark CEO Cathie Wood sees another threat crypto poses for the big banks. “In the case of DeFi and next-generation internet, we are seeing a lot of financial companies losing talent to crypto. So they have to take it seriously, or else they are going to be hollowed out,” Wood said in a session with Coinbase CEO Brian Armstrong at the Milken Institute Global Conference.
Just one question for … Johnny Ayers, CEO and founder, Socure
Before founding Socure, which makes identity verification software for banks, fintechs, gaming companies and crypto exchanges, Ayers worked as a consultant and was a full-scholarship varsity athlete in football and baseball at Boston College.
What's been your biggest professional blunder and how did it help you?
During one of my earliest attempts at starting a company, I gravely underestimated the importance of surrounding yourself with absolutely A+ talent in every role and with teammates that were completely dedicated and aligned to the mission at hand. We had folks that were part time. We had friends of friends, whoever we could pull together to work on this thing with us. Unfortunately, I quickly realized that not everyone was at the same talent level, not everyone had the same end goal in mind for the company and we unfortunately, after years of trying to make it work, broke up because we were so misaligned on what we were collectively trying to achieve. What I learned from this painful lesson was that culture, world-class talent, strategic alignment and overcommunication and a shared mission and vision were absolutely fundamental foundations for a successful, healthy and motivated entrepreneurial team.
A MESSAGE FROM CHECKOUT.COM
Businesses — whether Web2 or Web3-oriented businesses that don’t want to hold crypto but do want to be able to interact with crypto holders — want to be able to offer that as a payment mechanism to their communities. The other is hands-on, where merchants are comfortable accepting crypto.
Thanks for reading — see you tomorrow!