El Salvador’s Bitcoin Treasury Is Bigger Than Expected (and Growing)

El Salvador’s President Nayib Bukele took to social media to showcase a “big chunk” of the country’s Bitcoin treasury. A screenshot revealed a staggering 5,689 Bitcoin tucked away in a cold wallet, translating to roughly $406 million at the time. This hefty sum implies a Bitcoin price hovering around $71,463 when the funds were transferred – aligning with the wallet’s first transaction on March 12th.

Prior estimates placed El Salvador’s Bitcoin reserves at a mere 2,848 BTC, valued at $173 million. This revelation significantly ups the ante, demonstrating a more substantial investment in cryptocurrency. President Bukele has been a vocal proponent of Bitcoin ever since legalizing it as tender in   2021. His administration even launched a geothermal Bitcoin mining operation and “volcano bonds” tied to Bitcoin.

Despite Bukele’s re-election in February, securing a second term, El Salvador’s Bitcoin embrace hasn’t been without controversy. The International Monetary Fund (IMF) has clashed with the nation, urging them to reverse their Bitcoin legal tender decision.  Additionally, U.S. lawmakers have voiced concerns about potential risks to American interests.

Furthermore, Bitcoin’s volatile transaction fees pose another challenge. The May 2023 surge in popularity of Bitcoin Ordinals sent fees skyrocketing to over $30 per transaction. This led to frustration among Salvadorans, with one citizen highlighting the high cost of even a simple $100 transaction.

Blockchain data analysis reveals that the majority of Bitcoin in El Salvador’s cold wallet, roughly 4,568 BTC, originated from the crypto exchange Bitfinex. The most recent influx arrived the night before, with a hefty 4,007 BTC transfer from a Bitfinex exchange address.

The Bitcoin price has experienced some turbulence, dropping 8% within the past day. This dip partially stems from Grayscale selling $400 million worth of Bitcoin to Coinbase.  Grayscale Bitcoin Trust (GBTC) allows investors to redeem shares backed by actual Bitcoin. When redemptions occur, Grayscale sells the underlying Bitcoin, creating downward pressure on the market.

Intriguingly, El Salvador’s Bitcoin treasury has continued to expand since Bukele’s initial post. As of this writing, the cold wallet boasts 5,689.7 BTC, valued at approximately $415 million.  Bukele lightheartedly dubbed the wallet “our first Bitcoin piggy bank,” emphasizing the steady growth of their Bitcoin reserves.

El Salvador’s evolving Bitcoin strategy remains under scrutiny. While the nation’s commitment to Bitcoin appears unwavering, challenges like fluctuating fees and external pressures persist. Only time will tell how this Central American nation navigates the uncharted territory of Bitcoin adoption as a legal tender.