El Salvador Makes a Bumpy Start in Its Crypto Debut

Bumpy Start in Its Crypto Debut

On El Salvador’s crypto debut, the bitcoin price dropped by 17 percent

Cryptocurrencies continue to remain a gray area for many countries because of the sector’s lack of regulatory clarity. However, El Salvador President Nayib Bukele has taken a blind leap of faith by adopting Bitcoin as a legal currency.  El Salvador has now become the world’s first country to officially adopt bitcoin as legal tender.

The plan headed by the President aims at helping the citizens of El Salvador save US$400 million per year in remittance fees (levied by banks & financial institutions). The move will also give the citizens with no bank accounts access to financial services. Last month, the country also installed Bitcoin ATMs as a part of its Bitcoin adoption plan. The ATMs will enable its citizens to convert the cryptocurrency into US dollars and withdraw it in cash form.

To further boost cryptocurrency usage, the government has promised each Salvadoran US$30 worth of Bitcoin by downloading the government’s Bitcoin wallet Chivo. A glitch plagued the Chivo app’s debut on Tuesday because it was unavailable for downloads on various app stores by Apple, Google and Huawei. Bukele later explained that the digital wallet was pulled offline to increase the capacity of the servers. He encouraged the citizens to download the app and leave comments on how it works.

A rocky start

On day one of El Salvador’s cryptocurrency foray, the Bitcoin price dropped by 17 percent to US$43,119, reaching its lowest in September. The crash seemed to have followed after El Salvador bought a total of 400 Bitcoins. However, the price crash didn’t stop Bukele from going all out in the crypto market. On Tuesday, Bukele purchased an additional 150 Bitcoins at a lower price, bringing the total to 550 bitcoins. He tweeted, “150 new coins added #BitcoinDay”. He further added a sarcastic tweet to thank the International Monetary Fund (IMF) for helping the Central American nation “save a million in printed paper.”

Tweet from Bukele’s Twitter

A stamp of disapproval

The IMF and World Bank have already flagged concern about cryptocurrency adoption because of its non-transparent, volatile and unpredictable nature. In a blog, the IMF has warned countries against adopting cryptocurrency as legal tender. The blog states that cryptoassets come with substantial risks to macro-financial stability, financial integrity, consumer protection, and the environment as a national currency. See What Are The Laws Around Cryptocurrency? for more on legal uncertainties for regulating cryptocurrency.

“The most direct cost of widespread adoption of a cryptoasset such as Bitcoin is to macroeconomic stability. If goods and services were priced in both a real currency and a cryptoasset, households and businesses would spend significant time and resources choosing which money to hold as opposed to engaging in productive activities,” said IMF in the blog. The IMF also added that adopting crypto would expose to exchange rate risk if taxes were quoted in advance, while expenditures remained mostly in the local currency, or vice versa.

Header image courtesy of Unsplash

SHARE THIS STORY

Share on facebook
Share on twitter
Share on linkedin
Share on email
Nidhi Singh
A self-confessed Bollywood lover, travel junkie, and food evangelist. I like traveling and I believe it is essential to take your mind off the daily monotony. I’ll be reporting on stories from Asia's entrepreneurial ecosystem and can’t wait to get going!

RELATED POSTS

How to Invest in the Cannabis Industry

How to Invest in the Cannabis Industry

Despite cannabis (also known as weed or marijuana) being illegal in a large part of the world, the global cannabis market was worth US$28.26 billion in 2021 and is expected to grow to US$197.74 billion by 2028. Gone are the days when venture capital firms would dismiss cannabis companies as problematic investments.

Why Crypto Markets Crash and 5 Ways Investors Can Deal

Why Crypto Markets Crash and 5 Ways Investors Can Deal

With more and more people holding cryptocurrencies today, the crypto crash of May 2022 has had severe financial consequences. Reliable currencies, including Bitcoin and Ether, met a terrible fate, as did stablecoins, amounting to losses of over US$300 billion.

How Lemi Is Helping Small Businesses Reach Their Customers

How Lemi Is Helping Small Businesses Reach Their Customers

Starting a business isn’t easy. From finding raw materials and making your products to actually reaching the right customer base, everything takes a lot of time and energy. Even though this process is so hard, a lot of people venture out and start their own businesses, so much so that small business enterprises (SMEs) make up 90% of the world’s businesses.