El Salvador’s unprecedented adoption of bitcoin seems to have hit a rough patch lately.
Bitcoin has fallen nearly 70% since reaching nearly $69,000 in November 2021. The global fall in bitcoin prices has hurt El Salvador, which is already struggling with a massive debt crisis.
The Central American nation has seen its investments worth $105 million for 2,301 bitcoins drop by over half in value to around $51 million.
However, President Nayib Bukele, a bitcoin enthusiast, remains optimistic. On Wednesday, Mr Bukele hinted that the country might buy more bitcoin.
El Salvador was one of the early bidders to became the first country to adopt bitcoin as a legal tender in September 2021.
— Nayib Bukele (@nayibbukele) June 14, 2022
“Governments invest knowing the risks involved in every asset class, keeping a long-time horizon in mind. El Salvador will continue investing in bitcoin with confidence,” believes Jin Gonzalez, Chief Architect at Oz Finance.
Despite Mr Bukele’s optimism, the ground reality in El Salvador does not seem to favour bitcoin adoption.
A recent poll by an El Salvadorian University revealed that over 60 per cent of the citizens, who participated in the survey, still prefer to hold the dollar over bitcoin.
And only about one-fourth supported the El Salvador’s move to adopt bitcoin as a legal tender.
A report by the National Bureau of Economic Research suggested that bitcoin usage is low and is mostly concentrated among the educated, banked and male population.
In fact, among the many reasons behind bitcoin adoption was to empower the large unbanked population – about 70 per cent of the population.
“The failure (in people adopting bitcoin) is largely due to poor planning and execution by the government. A failure to build up payment infrastructure around bitcoin has been fatal,” says crypto expert Dan Ashmore.
Mr Ashmore also adds that it would be wrong to say that El Salvador jumped the gun by being the first Bitcoin adopter.
“What if El Salvador’s purchase had kicked off a high-stakes game theory effect? This would have led other governments to follow the lead, and the price of bitcoin would have ramped up quickly,” he says.
Crypto experts argue that the continuing fall in bitcoin prices is largely due to central banks hiking interest rates, the global inflation crisis, the worsening geopolitical situation and the regulatory uncertainty in many countries, including India.
Mr Bukele’s enthusiastic tweets on bitcoin point toward El Salvador continue with its unprecedented project. But that may be a red signal for other countries contemplating making cryptocurrency a legal tender.
“El Salvador is the first to learn and adjust its strategy to find out what works for it. Other countries will probably take a more conservative stand until they see less volatility in the market,” argues Mr Gonzalez.
However, the global fluctuation in bitcoin prices provides the opportunity to demystify the complex digital asset for the common public – be it in India or around the world.
“A successful bitcoin adoption requires a long-term plan to educate the public on what it is, its benefits over fiat currency, and how to use it,” says Mr Ashmore.