Countries Smiling at Bitcoin's 'Trump Rally'... How High Will It Go? [AK Radio]

El Salvador and Bhutan Succeed in Holding Coins
Expecting Russian Coin Inflow After Ukraine War Ends
Policy Benefits Likely to Increase from Trump's Second Term

Bitcoin surpassed the $90,000 mark, reaching an all-time high following the successful re-election of former U.S. President Trump. Amid this rapid surge in Bitcoin, El Salvador and Bhutan have emerged as the biggest beneficiaries. There is also growing anticipation that if the war in Ukraine comes to an end, various cryptocurrencies, including Bitcoin, which have been tied up with Russia, will circulate again, further revitalizing the cryptocurrency market.

El Salvador: The Country That Successfully Held Onto Coins for 3 Years

President Nayib Bukele of El Salvador. Photo by AFP Yonhap News

El Salvador began purchasing Bitcoin after President Nayib Bukele adopted it as legal tender in September 2021. At the time, the international community expressed concerns over El Salvador's decision, especially since the country was struggling with massive national debt. The International Monetary Fund (IMF) officially warned that adopting cryptocurrency as legal tender posed significant risks.

President Bukele's decision also faced backlash from the citizens. The policy was announced abruptly without public consensus or opinion polls. Protests were intense, and some Bitcoin ATMs were set on fire or destroyed. Nevertheless, President Bukele strongly pushed forward with Bitcoin-friendly policies despite the opposition.

The background to El Salvador's adoption of Bitcoin as legal tender involved diplomatic friction with the United States. El Salvador originally used the U.S. dollar as its official currency, which made it difficult to implement independent economic policies. The country was inevitably subject to U.S. interest rate and economic policies. Particularly during Trump's first administration in 2017-18, U.S. aid was drastically cut, shaking the economy and highlighting the need for economic autonomy.

El Salvador has been a representative pro-American country under U.S. administration since the 19th century and still receives annual aid from the U.S. However, after the aid cuts during the Trump administration, voices calling for economic independence from the U.S. grew louder. While there was a need for a new legal currency, issuing its own currency was practically difficult due to challenges in securing creditworthiness and the high costs involved. In this context, Bitcoin emerged as an extreme but feasible alternative.

Currently, El Salvador is known to hold approximately 5,930 Bitcoins. The average purchase price was around $40,000, so considering the current Bitcoin price exceeding $90,000, the country has earned more than double the return. In terms of purchase amount alone, El Salvador invested about $240 million (approximately 334.1 billion KRW), and the value has now risen to about $500 million (approximately 696.1 billion KRW).

Bhutan, Hit Hard by COVID-19 Tourism Industry, Revitalizes with Coins

Taksang Gompa, a major temple tourist site in Bhutan. Bhutan Tourism Council

Meanwhile, Bhutan, one of the world's poorest countries, started accumulating Bitcoin in 2017 and is currently known to hold 12,500 Bitcoins, more than twice that of El Salvador. Bhutan's Bitcoin holdings were first disclosed earlier this year, and most were acquired through mining.

Bhutan was able to secure a large amount of Bitcoin due to the relocation of mining farms following the COVID-19 pandemic. China began cracking down on mining farms around 2020 due to the combined impact of the pandemic and power shortages. At that time, China accounted for over 75% of global Bitcoin mining, and these mining farms dispersed to Russia, Central Asia, Bhutan, and other regions.

Located in the Himalayan highlands, Bhutan had optimal conditions for operating mining farms. It has favorable conditions for hydropower and solar power generation, and with a small population of less than 800,000, electricity consumption was low. Additionally, the cold climate of the highlands helped prevent server overheating. Moreover, Bhutan was relatively less affected by COVID-19, allowing mining operations without lockdown restrictions.

Ceasefire Atmosphere in Ukraine War... Will Russian Coins Return?

AFP Yonhap News

Russia has recently actively engaged in the Bitcoin market by proposing the establishment of electronic currency payment platforms centered on BRICS countries and legalizing cryptocurrency mining. Before the war in Ukraine, Russia was the third-largest Bitcoin holder globally after the U.S. and China, but international sanctions following the war have made international Bitcoin transactions difficult.

Russia has faced significant difficulties in international transactions due to sanctions on the SWIFT international payment system. The sanctions were particularly devastating as major exports like oil and gas are traded in U.S. dollars. In response, since late July, Russia has allowed free coin mining by individuals and corporations and enacted laws enabling cryptocurrency payments in international transactions.

Experts point out that the policy direction of the Trump administration is crucial for Bitcoin's future outlook. The expectation that a second Trump administration would incorporate Bitcoin into the institutional asset framework is driving the current upward trend. Until now, Bitcoin has been perceived more as an alternative asset rather than an institutional asset like stocks or bonds, and at times, it has been associated with terrorist groups, sanctioned countries, and criminal organizations as a means of transaction.

Bitcoin Holds Both Currency and Commodity Characteristics

Reuters Yonhap News

However, for Bitcoin to function as a currency, the current high price volatility must be resolved. Bitcoin possesses characteristics of both currency and commodity, resulting in price differences by country and significant volatility due to 24-hour trading. This conflicts with the stable value required of a currency.

Furthermore, as the Ukraine war enters a ceasefire phase, Bitcoins that had been trapped in Russia are expected to re-enter the market, and if trade disputes with China are resolved, the global Bitcoin market is projected to expand further. China still holds many exchanges and mining farms, so improvements in U.S.-China relations are likely to be a key variable in Bitcoin market expansion.

If Bitcoin establishes itself as an international transaction medium, it is expected to reduce transaction costs and enable rapid international remittances. It could also provide new economic development opportunities for developing countries excluded from the dollar payment system. However, Bitcoin's significant price volatility could pose risks in international transactions. Ultimately, the key to future development will be whether Bitcoin can find a balance between its value as an investment asset and its function as a currency.

Editor's Note This content is also available on Asia Economy's economic podcast 'AK Radio.' AK Radio is a platform that delivers essential information for investors, covering politics, economy, international affairs, tech, bio, and digital trends. Clicking the video play button within the article allows you to hear the reporter's actual voice. This article is a reorganization of the content broadcast on AK Radio through ChatGPT.