One month since Bitcoin became legal tender in El Salvador by DailyCoin
A month since Bitcoin became legal tender in El Salvador
- The first volcano generated was extracted in El Salvador.
- Bitcoin was declared legal tender in El Salvador on September 7
- More and more countries, including Brazil, are looking to adopt Bitcoin as legal tender.
Bitcoin’s role in the larger financial model is still unknown, with nation states embracing it or banning it entirely. As a financial instrument, Bitcoin has not been shown to be able to perform foreign exchange functions due to its volatility risk factor. Nonetheless, with increasing interest from institutions and retailers, El Salvador adopted Bitcoin as legal tender in the country, despite spikes in volatility, effective September 7, 2021.
No Bitcoin Honeymoon
Nayib Bukele, President of El Salvador, introduced the initial ‘Bitcoin Law’ bill in June 2021, which was passed on September 7, making El Salvador the first country in the world to make Bitcoin a currency. legal, while countries like China have declared it illegal. , promoting their own isolated agenda.
The decision to accept Bitcoin was seen more as a publicity stunt than an economic incentive. Steve H. Hanke, director of the Troubled Currencies Project, criticized the idea of introducing an “untested idea” into an already functioning monetary system. Bitcoin is a “forced bidding”; the decision to exercise an unusual financial model has proven to be beneficial to some extent.
Following the drop in crypto market prices, Nayib Bukele announced that the country “bought back the drop”. El Salvador bought $ 6.4 billion worth of Bitcoin, 150 BTC, bringing its holdings to 700. As the market climbed to $ 54,000, the country made a profit of US $ 1.5 billion.
With the release of the Chivo Wallet app, residents of El Salvador were able to claim $ 30 worth of BTC as an airdrop. With Bitcoin prices rising, every resident who held BTC also made a profit of 10%. However, the purpose of the airdrop was to induce citizens to make the BTC payments made possible under the new law.
On the reverse
- Bitcoin went from a unit of change in 2014 to a store of value and a hedge against inflation as its value increased.
- Bitcoin has lost over 50% of its value so far in 2021 from its previous high of $ 64,000.
- Users who are paid in Bitcoin are more likely to store it than to exchange it in USD.
Accepting Bitcoin as legal tender has its advantages, in addition to establishing El Salvador as one of the early adopters of crypto. Despite the disparities between technological development and the country’s status, El Salvador is embracing crypto. Over 3 million users have currently downloaded the Chivo wallet, which is half of the country’s population.
In addition, Nayib Bukele pointed out that Salvadorans “insert more money” than they take out. El Salvador relying on money transfer networks, Bitcoin has reduced transaction costs. Over 9% of all transfer transactions are now done in bitcoin. Bukele notes that over $ 2 million is sent daily as more people start to trust digital wallets rather than regular banks.
Geothermal energy is an infinite and ecological resource, which Bukele has secured in order to promote greener alternatives to Bitcoin mining. With talks emerging about a new crypto mining hub in El Salvador, Bukele announced that the first volcanic-powered geothermal bitcoin has been mined, amounting to 0.00599179 BTC. With more stress tests underway, Bitcoin volcanic bitcoins could become a workable promise.
Behind the Bitcoin Curtain
Bitcoin’s mass exit has not been without reverberation. Users reported to Reuters that they lost up to $ 220 while trying to withdraw money from the Chivo wallet. In addition, the USD still carries more weight in the economy, which means that Bitcoin has an exchange rate of 10%, reframing Bitcoin as a store of value.
What is more concerning is the stability of Bitcoin, which makes BTC spending less likely, setting new precedents for price speculation. Bloomberg reports that Chivo’s ease of use has turned ordinary individuals into day traders, following in the footsteps of their chairman, who “buys the drop.”
Bitcoin’s volatility calls into question financial stability in the emerging economy, with reports suggesting citizens do not appreciate the use of Bitcoin. In addition, the ease with which economic transactions can be carried out increases the use of Bitcoin for illegal activities, while individuals continue to depend on the US dollar for their daily payments.
Why should you care?
Many see Bitcoin’s implementation as a kind of test pilot, and much attention is being paid to the financial results of the Bitcoin Law. Unfortunately, there is no concrete evidence that Bitcoin will help El Salvador economically or socially. Still, it will serve to show the world to what extent Bitcoin can be used as a unit of exchange.
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