When a digital coin that was both intangible and lacked a face behind the name was first released in the market in 2008; most investors shied away and treated the whole ‘cryptocurrency’ space like a short-term farce.
But fast-forward 13 years into the future and the entire investing world is stockpiling on cryptos named after dogs, taking financial advice from a crazy billionaire on twitter and moving towards a new form of national currency. In the hours of 7th September, 2021 we saw the digital currency world change forever. Bitcoin, the first ever crypto currency in the world has officially been announced as legal tender in El Salvador.
But this radical decision which was implemented by the country’s president, Nayib Bukele has proved to be costly. For a country that believes that digital currency via Bitcoin is the way ahead; it is ironic how little of the El Salvador’s population have access to technology. The poorest will struggle to trade with Bitcoin since nearly half the population has no internet access.
Another major area of doubt sprouted from the country’s very own government backed-app for exchanging Bitcoin. The digital wallet known as Chivo was not getting placed on the Apple and Android platforms; forcing Nayib Bukele to himself tweet out instructions like a software engineer trying to fix a computer bug. This instigated large protests from within the country; after the people were promised $30 of Bitcoin via the Chivo app.
But unfortunately for the President and his administration; a couple hundred angry residents and a dodgy digital wallet were just the tip of the iceberg. After reaching a four-month high of $52,956 Bitcoin plummeted to $46,560 overnight. This 11% drop was the heaviest loss the currency had incurred in nearly 2.5 months. The entire crypto market since then has fallen by a shattering 20%; all the top players such as Ethereum, Cardano and Doge facing a massive step back. The country’s worst fears of this volatile currency constantly eating into their net worth has come true at a shockingly quick rate.
The massive drop quickly overshadowed the historic day for the country; but analysts believe that the timing of the crypto crash and the adoption of Bitcoin as a legal tender by El Salvador is not a mere coincidence. With the likes of the IMF (International Monetary Fund) and the World Bank completely opposing El Salvador’s decision to adopt Bitcoin given the lack of transparency and the environmental impact of coin mining; the big banks may not be entirely disappointed by the recent drop.
The IMF took a particular dim view of El Salvador’s decision since they provided the country with an emergency loan just last year and felt the country’s decision would lead to a number of economic, financial and legal issues.
Popular economist Ricardo Castaneda believes that the roll-out policy of the Chivo app had a bigger impact than anything else. “There has been a high degree of improvisation in the rollout of Chivo and a great deal of Opacity”, he said.
But despite the massive setbacks, the country is still expecting great things from their historic decision. With the likes of Starbucks, McDonalds and other large corporations already accepting Bitcoin in El Salvador; the adoption process is slowly gaining momentum. President Nayib Bukele has purchased 7 more Bitcoins after the initial drop; so we know he is going to be HODLing for the long-run whilst slowly joining Elon Musk as the latest celebrity turned social media crypto influencer.
The main question still remains, can this skepticism over the Bitcoin gamble turn into a breakaway financial haven for El Salvador ?