Street protests, technological glitches, and a crypto crash…and that was just the first day.
When El Salvador became the first country in the world to recognize Bitcoin, or BTC, as legal tender, few analysts predicted a smooth transition.
However, the official adoption couldn’t have gone much worse for the Central American country in a chaotic opening 24 hours. Here are five of the key talking points to a historic episode in the history of currency.
The people take to the streets
Cryptocurrency is hailed as the future of money by some financial experts, but in a country where half the population has no internet access, many people are unsure about what Bitcoin even is.
The uncertainty is part of the reason why protests broke out across the country at the same time as the BTC launch.
More than 1,000 people protested outside the supreme court in San Salvador, the nation’s capital, setting off fireworks and burning tyres.
Other reasons for opposing the virtual coin include a hostility towards big businesses. Many citizens believe their economy will be exploited by the so-called ‘whales’ – people with large amounts of BTC – to make profit. Other people simply don’t like the volatility of the currencies, with prices sometimes soaring or dropping by over 10% in a single day
However, not everyone is put off by Bitcoin. It’s high accessibility means it’s a way for ordinary people to invest in financial markets – something that’s normally out of reach.
The biggest crypto crash in months
The protestors may have a point about volatility. The last 12 months have seen the price of Bitcoin treble in value to a high of around $61,000 in early 2021, dip by 50% over the summer, and almost double again in August and September. Swings and drops like this might make some people think they’re better off putting their BTC into a Bitcoin-friendly casino, rather than a crypto exchange.
Bitcoin stayed true to form on launch day. After starting the day at the $52,000 mark, it plummeted 17% to $43,000 at one point, before steadying itself at around $47,000.
It was part of a wider crash that saw over $400 billion wiped off the value of the full crypto market. Altcoins such as Ether, Cardano and Ripple suffered their biggest fall in months, as investors were spooked by the shock to the system.
Forecasts for the short to mid-term, though, are mixed. Some experts believe the crash was just a blip before the next step higher for crypto prices.
Others believe that Bitcoin simply isn’t ready to be an official currency, and the ensuing problems in El Salvador will contribute to a long-term slump.
The government snap up more Bitcoin
The crash did have one small consolation for the country – it allowed them to ‘buy the dip’. Buying the dip is a common investing term for purchasing when prices are cheaper, and this is exactly what the El Salvador government did.
They swooped in to buy an additional 150 bitcoins as prices fell, worth around $7 million.
The problem is, they had already lost almost a fifth of the value from their initial purchase of 400 BTC (around $20 million) a few days prior. If the price were to drop more, then many will question the wisdom of the government’s investment.
However, for ‘bullish’ believers in the long-term value of BTC, buying at any point below $50,000 is good value. They expect the coin to hit $100,000 soon, on its way to even higher values over the next few years.
Tech glitches force the President to take to Twitter
Ahead of the launch, El Salvador’s President Bukele announced a new national digital wallet, called Chivo, designed to make the transition to virtual money as smooth as possible.
Come the big day, though, and the wallet’s app was nowhere to be seen on Apple or Android. After a period of uncertainty, the president complained to the online stores via Twitter in a bid to make it available.
The reason was a technical glitch that meant the app couldn’t cope with the influx of new registrations. The government then connected it to more servers to increase capacity and it appeared that the problem was solved.
People start to make BTC payments at major outlets
With the glitches corrected, the day was about to end on a happy note as pictures appeared online of shoppers using Chivo in retailers such as Starbucks to pay for goods in BTC.
President Bukele posted the images to show the world that the crisis was over, and El Salvador was on the way to the successful adoption that he predicted.
The good news, however, didn’t make the fears about money laundering and security go away. This will be the big test for El Salvador over the next few months – to make the currency work in a climate of fear and distrust.