El Salvador became the first country in the world to adopt bitcoin as legal tender today (September 7).
“B-day”, as locals have called it, ushers in a new era in which the country’s residents can buy breakfast or pay their taxes in bitcoin: all companies and banks must now accept bitcoin in addition to the US dollar, the other legal tender of the country.
The long-term implications of this daring experiment remain to be seen, but critics from Nayib Bukele, the young president of El Salvador, say he is putting the country’s finances at serious risk.
Today’s beginnings clearly showed this. The price of Bitcoin unexpectedly fell 17% by mid-morning, wiping out $ 400 billion in minutes. Although the price hovered around and just above US $ 50,000 over the weekend, it fell below $ 43,000 at one point before rebounding to around $ 46,700 by 4 p.m. ET.
The bitcoin price pump that wasn’t
This morning, crypto-curious residents of the small Central American country were able to sign up for a government-issued “Chivo” wallet with $ 30 worth of bitcoin. However, the government briefly took the wallets offline while it expanded its servers. That could have explained part of the sale; others blamed a unproven global conspiracy to derail the future of Bitcoin. But Bloomberg Intelligence commodities analyst Michael McGlone, who is generally bullish on bitcoin, said the price movements only reflected the “boom” of speculative investors. McGlone expects crypto prices to slowly start to appreciate again with occasional “nuances”, like today’s short-lived plunge.
Over the weekend, several bitcoin influencers on social media sites planned a pump at world price, similar to the coordinated rallies of meme stocks that have skyrocketed GameStop and AMC stock prices. In this case, bitcoiners urged retail investors and crypto enthusiasts around the world to purchase the equivalent of US $ 30 in bitcoin as a birthday present for El Salvador (and themselves). A group of 3 million strong Redditors in Brazil would have been prepared. join the effort. According to a few messages, coordinated purchases were to start at the same time around the world.
However, whether the $ 30 buys occurred en masse was not evident by today’s price action. Either way, if the price of bitcoin had skyrocketed, the artificially inflated rate probably wouldn’t have been sustainable.
Untested president bets on bitcoin
Economists and the IMF have warned that the country’s long-term macroeconomic stability is at stake for many reasons: The adoption of bitcoin complicates negotiations over the indebted country’s debt, for example, and could make its banks attractive to investors. criminals seeking to launder illegal earnings. Without understanding the unregulated crypto market, ordinary citizens who enter bitcoin expecting it to gain value against other currencies could experience a sharp, if not tragic, wake-up call. With bitcoin, there’s no guarantee that what you own today won’t be worth half as much tomorrow.
El Salvador bought 400 bitcoins ahead of Chivo’s official launch day. When the price collapsed this morning, Bukele – in a show of confidence, recklessness, wishful thinking, or a combination of all of the above – decided to buy an additional 150 bitcoins at a lower price. He thanked the IMF for giving him the opportunity to save ”a million paper money”In this impromptu shopping spree.
Bukele’s presidency will be defined by the profitability of his bitcoin plan. Many fear the 40-year-old, who favors leather jackets and goes into politics after a business career (he is a distributor of Yamaha motorcycles), appears to be most interested in bringing in wealthy foreign bitcoin entrepreneurs, as reported by Nicolás Rivero from Quartz. in June. Two years after starting his tenure as head of the country, his political opponents are now questioning his commitment to govern with transparency and protect democracy.
Bukele has promoted a rosy vision of the widespread adoption of bitcoin and technological innovation in the country. He also claimed that using the digital asset would save El Salvador hundreds of millions of dollars in transfer fees each year while positioning the country as a major player in a new world fueled by crypto. “This is a pretty monumental step in the evolution of bitcoin,” Garrick Hileman, head of research at Blockchain.com, a cryptocurrency transaction firm, told the Wall Street Journal.
To critics, however, the president essentially appears to be lining up at a roulette table with the capital and fate of El Salvador in his hands. Responding to the President’s cheerful message regarding the buy down, Daniel Munevar, Senior Debt Policy and Advocacy Officer at Eurodad, tweeted: “El Salvador is an over-indebted country which will need multilateral support to stabilize its [stet] finances. It is difficult to justify this support when the government is busy wasting public resources. “
Peter Schiff, the libertarian investor and longtime digital currency critic, also sent a sarcastic message to El Salvador and bitcoin supporters during the mini-crash:
But bitcoin advocates outside of El Salvador have understandably expressed their enthusiasm for the president. Sassy lines to established public figures in the financial world tend to play well among cryptocurrency “hodlers”.
What do Salvadorians think of bitcoin?
Bitcoin’s valuation in El Salvador looks equally mixed. In time for today’s launch, English Al Jazeera journalist John Holman traveled to El Zonte, a surf town in El Salvador that has been using bitcoin since 2018, for little money. 70% of Salvadorans don’t have a bank account and this is a way for them to save a little and (hopefully) see this pile grow as the value of bitcoins increases, ”he said. stated in a press release. Twitter feed. However, many residents also described the frustrations they felt over the sharp swings in ratings, he explained.
Today the government is facing protests by worried retirees, among others. A home appliance and furniture maker told the Wall Street Journal that it sees bitcoin as a smart diversification strategy for the country. “My mom thinks bitcoin is the devil’s thing,” he said, “but bitcoin has a lot of benefits.”
Other social media experts who claim to have received their small slice of bitcoin through the Chivo app or ATMs express their gratitude.