El Salvador Day and the Fall of Bitcoin

El Salvador Day and the Fall of Bitcoin

What for El Salvador, what for Bitcoin, September 7 was a significant day: for the first time in history, the cryptocurrency was recognized as a legal tender. At the same time, Bitcoin has experienced the strongest daily correction since the Chinese crypto sessions, since neither technically nor morally the country was not ready to accept cryptocurrencies. The President of El Salvador, Naib Bukele, tried to mitigate the negative from the correction by announcing the purchase of the fall.

Salvadorans in search of earnings immigrate to other countries, but continue to send money transfers to relatives. In 2019, their volume amounted to 1/5 of GDP or $6 billion. Transfers to USD remained extremely unprofitable, enriching US banking structures – for Naib Bukele, this became one of the main reasons for the introduction of Bitcoin. Now the commission in the Bitcoin network is $3, while sending money from Los Angeles in the Western Union system will take $18, Ria – $7, and Xoom or Boss – $ 5.

According to the adopted law, sellers are required to accept both USD and BTC for payment

The government assumes the costs of conversion, for which a reserve fund of $ 150 million was created, and stores can choose in which units they will receive funds. It is obvious that with the growing adoption of cryptocurrencies, government spending will increase. At the same time, high volatility will exacerbate this problem.

On the day Bitcoin was accepted, its volatility exceeded 20%. For the seller, this may mean a drop in revenue by almost the same amount if he sets a fixed price in cryptocurrency for the product. For this reason, most stores have chosen to receive funds in fiat.

For many Salvadorans, cryptotechnologies still remain a secret behind seven seals, and pensioners are afraid that these innovations are aimed at withdrawing pensions in USD. Because of this, several public demonstrations took place in El Salvador yesterday, and about a thousand protesters gathered in front of the Supreme Court building.

Naib Bukele asked the IMF to help with the introduction of cryptocurrencies into the financial system, but was refused. To make matters worse, the IMF’s $1 billion aid to El Salvador has been postponed indefinitely. In July, Moody’s downgraded El Salvador’s investment rating due to increased financial risks, which negatively affected demand for government bonds.

These circumstances increase fears that the government will not cope, the country will plunge into crisis, and the experiment with Bitcoin will fail. On these sentiments, the cryptocurrency showed a record one-day decline since May.