San Salvador, El Salvador stands at a significant juncture as bitcoin's historic highs and subsequent falls have left an indelible mark. President Nayib Bukele's bold move to adopt bitcoin as legal tender in 2021 has been a topic of intense debate and observation.

Unraveling El Salvador's Bitcoin Journey

Bitcoin's Historic Surge

Bitcoin reached unprecedented heights, surging past $100,000 for the first time. This remarkable achievement brought President Nayib Bukele great pride. The cryptocurrency's meteoric rise since Donald Trump's election victory last month was nothing short of astonishing. Just two years ago, bitcoin's value was below $17,000, highlighting its extreme volatility. On Wednesday night, it exceeded the $100,000 mark, only to fall back below it by Thursday afternoon, sitting just above $99,000 by 3 p.m. ET. This rapid fluctuation has captured the attention of both investors and the general public.

Bukele attributed the missed opportunity for many Salvadorans to the actions of his beleaguered political opposition. Street protests erupted when the Congress made bitcoin legal tender in June 2021, although there were other underlying factors driving the protests.

The tiny Central American country has long relied on the dollar, but Bukele saw bitcoin as a means to provide new opportunities for the unbanked and cut out money transfer services from remittances sent home by Salvadorans abroad. The government offered $30 in bitcoin to those who signed up for digital wallets, and many took advantage of this offer but quickly cashed out.

Bitcoin's Impact on El Salvador

Esteban Escamilla, a worker in a clothing store in Santa Tecla outside San Salvador, cashed out the original $30 of bitcoin offered in 2021. He explained, "I don't use bitcoin because I don't have (money) to invest and speculate with, but I know it has gone up a lot. I would have more money now if I had kept it." Josefa Torres, 45, also didn't have any bitcoin as she was doing her grocery shopping and had used the money for household expenses.

At the conclusion of meetings between the International Monetary Fund and El Salvador's government in August, the IMF issued a statement highlighting the country's bitcoin holdings. It mentioned that while many risks have not yet materialized, further efforts are needed to enhance transparency and mitigate potential fiscal and financial stability risks.

El Salvador's former Central Bank President Carlos Acevedo pointed out that although there has been a gain, it remains unrealized until the government's bitcoin is sold. He credited Bukele's administration for their efforts on the bitcoin move, especially in light of Trump's election. Acevedo said the markets' optimism about a Trump administration being friendly with the markets and bitcoin explained its sustained rally over the past month. However, he also emphasized the cryptocurrency's persistent volatility.

The average Salvadoran may not be directly using bitcoin, but there are Salvadorans with economic resources who have already invested in it. It is a small group that has been affected by bitcoin's ups and downs.

Bitcoin made history on Wednesday as its price surpassed $100,000 for the first time. This remarkable achievement came during a rally that was set in motion by the election of former President Donald Trump. Since Election Day, when voters chose a candidate seen as favorable towards digital currency, Bitcoin has witnessed an astonishing climb of more than 40%. Such gains have far outpaced the performance of the stock market. While the S&P 500 has increased by about 2.4% and the tech-heavy Nasdaq has jumped 2.6% over the same period, Bitcoin has soared to new heights.

Trump's Impact on the Cryptocurrency Sector

During his campaign, Trump pledged to support the cryptocurrency sector and ease regulations imposed by the Biden administration. He even promised to establish the federal government's first National Strategic Bitcoin Reserve. Additionally, Trump vowed to replace Securities and Exchange Commission Chair Gary Gensler, who is disliked by many crypto proponents for his approach to crypto regulation. Gensler announced his intention to resign on Jan. 20, 2025, which is the date of Trump's inauguration. This post-election euphoria has not only lifted Bitcoin but also other parts of the crypto sector. Ethereum, the second-largest cryptocurrency, has climbed 27%, while lesser-known dogecoin has skyrocketed about 140% and litecoin has surged 35%. Shares of Coinbase, a top crypto trading platform, have also increased more than 70% since Trump's reelection.

The History of the Crypto Industry

The crypto industry has had a remarkable turnabout in recent weeks. Entering this year, it was bruised after a series of high-profile collapses and company scandals. For example, FTX, a multibillion-dollar cryptocurrency exchange co-founded by Sam Bankman-Fried, collapsed in November 2022. This led to a 17-month legal saga that ended with Bankman-Fried being convicted of fraud and sentenced to 25 years in prison. Changpeng Zhao, the founder and former CEO of major cryptocurrency exchange Binance, was also sentenced to four months in prison in April after pleading guilty to charges related to enabling illicit financial activity. However, the reelection of Trump has marked a series of positive developments for the cryptocurrency industry.

The Role of Bitcoin ETFs

In January, the U.S. approved bitcoin ETFs, or exchange-traded funds, which have played a significant role in the recent surge of Bitcoin. Bitcoin ETFs allow investors to buy into an asset that tracks the price movement of Bitcoin without the inconvenience and risk of purchasing the crypto coin itself. Last month, options on BlackRock's popular iShares Bitcoin Trust ETF (IBIT) became available for trading on the Nasdaq. These options provide a new avenue for Bitcoin investors, allowing them to commit to buy or sell the ETF at a given price by a specific date. While such investments come with additional risk, they also offer the potential for large payouts. IBIT inched upward 1% on Friday and reached a record high of about $56.

Volatility and Future Prospects

Despite the recent surge, the performance of cryptocurrencies, including Bitcoin, remains volatile. Bryan Armour, the director of passive strategies research at financial firm Morningstar, attributed the recent crypto surge to investors' anticipation of friendly policy under Trump and the newly available options trading for Bitcoin ETFs. However, he also warned that the price of Bitcoin could fall, especially if Trump faces difficulties in fulfilling his campaign commitments. "As long as the narrative stays positive, there's always room to grow," Armour told ABC News before Bitcoin reached $100,000. "I also think campaign promises don't always come to fruition." He added that Bitcoin is still a highly volatile asset.