Earn interest on bitcoin
El Salvador is the first country in the world to make bitcoin an official currency. Protests in the country, stock market collapse
Due to large sales volume, the price of bitcoin plummeted on the first day the cryptocurrency was used as legal tender in El Salvador, a small Central American nation. Exchanges are abuzz and peaceful protests are taking place in the country, with citizens wary of the innovation.
Legalised bitcoin
El Salvador, a small Central American state, has legalised bitcoin as the state currency and it is now official tender in the country. On the first day of the cryptocurrency's use, September 7, 2021, bitcoin collapsed due to high sales volume. Experts are divided, with the public holding peaceful protests and fears of the innovation.
The day before bitcoin surpassed the $52956 mark, and on Tuesday its price fell to $43050 in New York. The next day, Thursday, September 8, the cryptocurrency's price leveled off at $51080.
President's plan
According to President Salvador Nayib Bukele's plan, companies are now required to accept bitcoins in exchange for goods and services, and the cryptocurrency can also be used to pay taxes. The introduction of bitcoin will get an initial boost from the state-owned bitcoin wallet Chivo, an app available on the App Store and Google Play. The user registers with El Salvador's national ID number and receives $30 in cryptocurrency, this money can be invested in a business, for example. In a tweet, the president shared the story of a young man who has already invested his $30 in donuts to start his own business.
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Bitcoin's designation as official tender has sparked protests from the public
"People will be able to make savings to make a new roof in their house, buy a cow or send their children to school - something they were deprived of before," said Mike Peterson, director of Bitcoin Beach, a project promoting cryptocurrency in El Salvador.
According to the president, the move to cryptocurrency should attract citizens to the financial system and make it cheaper to send remittances, which is very relevant in a country where about a million and a half citizens work abroad and send earnings to family. In 2020, remittances from abroad amounted to $5.9 billion, the highest figure among countries today. Banks charge hefty fees for their services, and with many Salvadorans without bank accounts, the president's plan could be a "passport to the digital world" according to Mike Peterson.
RT en Español broadcast "Bitcoin, legal tender in El Salvador: 23% of El Salvador's GDP comes from remittances sent by immigrants, mostly from the US". The cost of sending remittances could be reduced by 98% if bitcoin were used as a means of payment in applications like Strike," the presenters share.
Opinion of the people
Not all citizens of El Salvador appeared ready to accept the innovations. On Wednesday, September 8, peaceful protests were held in the country under the slogan "No to dictatorship". Protesters said that bitcoin will not benefit the people of El Salvador. Many are frightened by the need to enter personal data into the app and the possibility of surveillance by the authorities.
The newspaper La Prensa Gráfica, on its official Twitter account, said: "Chivo's technical glitches have been exacerbated by citizens' weak interest in learning about the cryptocurrency. The entry into force of the Bitcoin law was not thought of by many." Many are sceptical about the innovations: "The crypto-asset lost about 11% of its value yesterday, El Salvador lost $2 million in the first 24 hours."
In addition, some economists, such as Mish Shedlock, believe that such a plan could "sink" the country.
Why the cryptocurrency crash happened
The sale of a large volume of cryptocurrency was the main reason for the currency's collapse. El Salvador bought 400 bitcoins, equivalent to about $20 million. On the same day, the cryptocurrency fell 18.6% amid a frenzy on exchanges. Experts estimate that more than $180 billion left the cryptocurrency market in a single day.
According to analysts, anticipation also played a big role. "I think there was some anticipation in the run-up to the El Salvador event, similar to what we saw before Coinbase listed on NASDAQ," Henrik Andersson, chief investment officer at Apollo Capital, a crypto asset fund in Melbourne, Australia, told Reuters. Meanwhile, the Salvadoran government was forced to shut down its bitcoin wallet to fix technical glitches. "We will shut down the system from 01:00 to 6:00 to make changes," "Hopefully the situation will improve tomorrow," Naib Bukele tweeted. Major US cryptocurrency exchanges Coinbase, Global Inc (COIN.O), Kraken, and Gemini started a frenzy and had to contend with delays in some transactions.