El Salvador's new golden visa option: Foreign crypto donors to be rewarded with citizenship

El Salvador, a small Central American country that made history in 2021 by becoming the first nation to make Bitcoin a legal tender, is now doubling down on its embrace of cryptocurrencies by passing a new migration law that will allow foreign nationals to gain citizenship for the country so long as they are willing to ‘donate’ Bitcoins. These Bitcoins, according to the text of the new law passed by the nation's parliament, will be used to fund the ‘economic, social and cultural development’ of El Salvador. There is no minimum or maximum limit set on such donations though it should be noted that a single Bitcoin, at the time of writing, is trading for over Rs 36 lakh. 

There are two bits of context to consider for this particular decision. First, the country's populist leader, President Nayib Bukele, is currently running for re-election in polls slated for February 2024 despite the nation's constitution prohibiting consecutive terms. 

Second, Bukele's government is presently trying to work out a new financing deal with the International Monetary Fund to float the nation's sagging economy. The IMF is reportedly concerned by the risks El Salvador has taken on by adopting Bitcoin as legal tender given its dramatic value fluctuations and de-centralised nature.   

It is unclear how this new golden visa scheme involving more crypto will help El Salvador convince the international lender to agree to a bailout package reportedly worth $1.3 billion. All the same, foreign investors looking to take advantage of this new scheme and enjoy El Salvador's beaches, tropical temperatures and low cost of living now have an expedited way to become a citizen. 

Previously, gaining citizenship in the country required a naturalisation process that could only be fulfilled by completing five years of uninterrupted residence in the country or two in case the individual in question married a citizen of El Salvador.

How is the Bitcoin adoption scheme working out for El Salvador?  

While Salvadorian officials contend that the 2021 scheme is working out quite well and that it has made millions in profit from its scheme, the reality is a little bit more complicated. To begin with, cryptocurrency prices are rarely stable, even for one as mainstream as Bitcoin. In 2021, when El Salvador first adopted Bitcoin as a legal tender, the value for the same stood at around $47,000. A year later, it was under $20,000. 

Now, even though the price of bitcoins has recovered to comparable levels, it still remains below the 2021 standard with no guarantee that it will not fluctuate one way or another. 

But beyond the risk of hitching the fate of El Salvador's debt-laden economy on something as unpredictable as crypto prices, the rate of adoption nationwide has also remained subpar. 

Research conducted by the National Bureau of Economic Research shows that only 20 per cent of the initial users who signed up to use the free credit provided on the government's Chivo crypto app are still making use of the facility. Most of these current users are young Salvadorians who are not only educated but more importantly, already possess bank accounts. As pointed out by many experts, this enthusiastic section of crypto users was never the target audience of the scheme. 

Instead, the scheme was focused on the majority population of El Salvador which is used to a traditional cash-based system and remains largely unbanked. The government attempted to reach out to precisely these sections, not only with the free $30 credit but also by making transactions and withdrawals using the app and associated ATMs completely free.

All the same, most Salvadorians remain wary of the app, either due to the perceived complexity of use or lack of trust in crypto and the government app. Surveys show that many Salvadorians want the Bitcoin law to be repealed though the country's leadership continues to insist on its use. Citizens aside, even the business adoption of cryptocurrency remains barebone in the country, with only 20 per cent or so accepting Bitcoin transactions despite being legally required to do so. 

Still, one area of success that cannot be denied to Bukele and his government is that the crypto decision cemented the place of El Salvador on the world stage, with a section of Crypto enthusiasts from across the globe moving to the country after the 2021 decision. Now, with this latest golden visa deal, El Salvador is looking to attract even more enthusiasts.