James and Nicki Malcolm moved to El Salvador from New Zealand to be part of a bitcoin dream sold by President Nayib Bukele in 2021 when he made the Central American nation the first in the world to accept the cryptocurrency as legal tender.

Months later, Bukele sketched his plans for Bitcoin City, a tax-free crypto haven powered by geothermal energy from a volcano, to a sea of enthusiasts at a beach club presentation that included an avatar of himself on a spaceship.

As the popular Bukele readies himself to win a second term this Sunday, ground has yet to be broken on Bitcoin City. But, undeterred and still inspired, the Malcolms, along with 15 other foreigners and a Salvadoran couple, have convinced more than 100 businesses to accept bitcoin in the coffee-producing mountain town of Berlin in eastern El Salvador.

“Adoption is huge for us — it’s what we feel is important and how bitcoin will win,” said Nicki, a former mortgage advisor who is part of the effort to turn Berlin into its own crypto mecca. “Bukele put the flag in the ground.”

Bukele is pressing ahead with his plan to make the country a cryptocurrency haven, hurting the country’s chance of a quick cash injection from the International Monetary Fund (IMF) even as credit agencies warn state coffers are running dangerously low.

On his social media feed, Bukele gloats about spikes in bitcoin’s value and touts infrastructure plans in videos set to club music. But that belies a stark reality: El Salvador’s economy is mostly stagnant and posts the slowest economic growth in Central America. Extreme poverty has doubled since 2019 and almost half the population lives with food insecurity.

“It’s unusual for someone to use bitcoin,” said Kevin Valle, 24, a Salvadoran produce vendor in Berlin’s main market. “What I can say is the cost of my tomatoes and onions has doubled, and people are worried about low employment and salaries.”

IMF deal

In 2022, the country’s public debt hit a 30-year record at US$25-billion.

After initial negotiations with the IMF for a billion-dollar deal fell apart earlier in his first term, Bukele’s government has since gone back to the table, and even hired the IMF’s former Western Hemisphere director last April. The IMF has recommended El Salvador remove bitcoin’s legal tender status during negotiations over financial support. The fund did not respond to request for comment.

But the 42-year-old firebrand’s resolve has been stiffened by bitcoin’s recent rally. The cryptocurrency’s comeback has pushed El Salvador’s alleged investments — no one really knows the size of its holdings — into the black.

Read: El Salvador plans first ‘Bitcoin City’, backed by bitcoin bonds

Nayibtracker.com, an unofficial website tracking El Salvador’s bitcoin portfolio based on Bukele’s social media, puts it at $121.6-million on an initial $119.8-million investment, a 1.5% return.

After a recent announcement by the US Securities and Exchange Commission to allow US-listed exchange-traded funds that track bitcoin, Bukele’s vice president told Reuters the government will be doubling down on its crypto law in a second term.

Nayib Bukele changed his bio on X to read “World’s Coolest Dictator”

The country’s adoption of the cryptocurrency alongside the dollar is largely not to blame for the overall state of the economy, say some economists, who point to low foreign direct investment and government overspending.

But amid questions over state spending habits and a clear liquidity problem, critics note bitcoin has yet to bring significant benefit.

Economists like Tatiana Marroquin have questioned Bukele’s decision to gamble an unknown amount of taxpayer dollars that could be used elsewhere on a risky investment.

Vice President Felix Ulloa said initial investor scepticism “was reversing”.

Through a carefully crafted media machine that keeps dissent in check, Bukele projects the image of a more modern, economically astute El Salvador.

But it is his massive crackdown on violent criminal gangs, at the expense of civil liberties, that has propelled him to dizzying heights of popularity with Salvadorans.

Bukele says he works for Salvadorans and once responded to concerns about democracy by changing his bio on X to “World’s Coolest Dictator”.

To date, most Salvadorans ignore bitcoin. They worry about the cryptocurrency’s volatility in a cash-based economy where many live hand-to-mouth.

Some 88% of Salvadorans did not use it in 2023, according to a survey by the University of Central America’s public opinion institute. Just 1% of remittances were sent in bitcoin.

Bitcoin tourism

Nearly two dozen people Reuters spoke to said they did not care to understand the cryptocurrency, but they were increasingly concerned about the lack of jobs and rising costs of housing and food.

Paired with security wins, Bukele’s bitcoin swing has rebranded El Salvador, helping boost tourism.

In Berlin, business owners say they conduct a handful of bitcoin transactions a day, mainly from tourists.

At Bitcoin Beach, ground zero for crypto in El Salvador, tourism has shot up. Many local businesses are happy about the influx, but several bemoaned skyrocketing prices, particularly of land as foreigners accumulate beachfront property.

While they handle a small number of bitcoin transactions, they complain about problems with Chivo, the digital wallet hastily created in 2021 by the government for Salvadorans to hold and send bitcoin.

“It was not well executed. Things that needed to happen just didn’t happen,” said Philip Ong, a Singaporean bitcoin entrepreneur who said he invested $1-million to set up a San Salvador office. He said he “strongly supports” Bukele’s bitcoin vision. But he left El Salvador last year — in large part, he said, because there was “no momentum”. — Sarah Kinosian and Nelson Renteria,with Rodrigo Campos and Diego Ore, (c) 2024 Reuters