Nayib Bukele, president of El Salvador. Photo by Alex Pena/Anadolu—Getty Images
Proof of State is the Wednesday edition of Fortune Crypto where Leo Schwartz delivers insider insights on policy and regulation.
On Sunday, Salvadoran President Nayib Bukele won reelection in a landslide, claiming to secure more than 85% of the vote. From the outside, his victory seemed like a triumph for a nation once synonymous with poverty and gang violence. Under Bukele, El Salvador has become one of the safest countries in Latin America, driving widespread support for his mano dura approach.
Bukele’s cheerleaders expand far outside of the tiny Central American nation, with Bitcoiners representing one of his most faithful legions of support. Bukele, after all, declared Bitcoin to be legal tender in 2021, and continues to work with firms like Bitfinex and Strike to attract crypto investor interest.
The reality of Bukele’s rule is far more sinister. As president, his tactics have been repressive and anti-democratic: ousting five Supreme Court magistrates and replacing them with loyalists, pushing the chamber to authorize consecutive presidential terms and clearing the constitutional path for his reelection, sending armed troops to occupy the parliament building amid a crime bill dispute, and rounding up thousands of innocent people in his draconian crackdown.
Bukele’s reign has all the hallmarks of an autocrat—he even welcomes the associations, trolling his critics by branding his social media accounts as the “world’s coolest dictator.” He has backed up the self-chosen title with a bevy of laws that press freedom groups describe as clear censorship attempts. Unsurprisingly, his reelection was marred by vote count irregularities.
And yet, Bukele is still widely embraced in the crypto crowd. When Rep. Ilhan Omar (D-Minn.) sent a letter to Secretary of State Anthony Blinken last week urging action on Bukele’s threats to Salvadoran democracy, she was met with vitriol from blue-checkmarked crypto acolytes on X, with one prominent Bitcoiner telling her, “You need to go back.”
Bukele advocates outside of El Salvador insist that extreme measures were necessary to solve the country’s pervasive occupation by gangs like MS-13—an argument that avoids the uncomfortable truth that the violence stems from disastrous U.S. policy and that Bukele seems to be working directly with organized crime to maintain order, which is not addressing the root causes of the conflict. Still, it is undeniable that Bukele has achieved at least a temporary peace, which has driven widespread domestic support in a country that never recovered from its civil war that ended in 1992.
What is more disturbing is Bitcoiners’ abandonment of their core ideals. Satoshi envisioned an alternative financial system that would not be subject to despotic governments and institutions—one that would be in the hands of its users. Even Bukele’s rollout of Bitcoin stood in stark contrast to those founding principles.
I visited El Salvador in November 2021 to report on Bukele’s Bitcoin gambit, which had been live for several months. The Bukele administration had commissioned a custodial wallet called Chivo that Salvadorans could use to hold and transact with Bitcoin, even seeding the wallet with $30 worth of Bitcoin to incentivize adoption.
The rollout, of course, was a disaster, with the cash-driven population unwilling to switch over to a volatile cryptocurrency for daily transactions, and bugs and security issues blemishing the launch. While that was expected, Bukele’s approach was even worse—it was unclear who actually controlled the country’s crypto holdings, and any illusion of “not your keys, not your coins” was quickly abandoned. When I spoke with Bitcoiners from the U.S. who had traveled down to visit the supposed crypto promised land, many were dismayed to find out that Bukele’s opaque launch was really just a P.R. stunt.
Not much has changed. Bukele has managed to attract luminaries like Max Keiser, Jack Mallers, and Paolo Ardoino to the country, but adoption is still near zero, and promised initiatives like a “Bitcoin City” and “Volcano Bond” have gone nowhere.
Don’t trust, as Bitcoiners love to say. Verify.
Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz
DECENTRALIZED NEWS
The controversial crypto firm Prometheum announced the launch of custodial services for Ether, a move that legal experts say could force the SEC to finally decide on Ether’s security status. (Fortune)
A New York judge ruled that Ripple Labs would have to provide financial statements to the SEC on the institutional sales of its token, XRP, as part of an ongoing lawsuit. (CoinDesk)
Fireblocks, a leading crypto custody provider, announced layoffs of 3% of its workforce amid broader industry cutbacks. (Bloomberg)
The SEC expanded its definition of a “dealer” to include more types of financial institutions, including different crypto firms like automated market makers. (CoinDesk)
Treasury Secretary Janet Yellen repeated her call for new legislation to plug regulatory gaps in spot crypto markets and for stablecoins. (The Block)
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