Image source,AFP
At least a thousand people took to the streets of El Salvador’s capital to protest against the government’s designation of Bitcoin as legal tender.
At the beginning of September 2021, El Salvador officially used Bitcoin as the national legal tender alongside the U.S. dollar. This caused huge controversy and confusion, and attracted the attention of Bitcoin investors and speculators all over the world.
Bitcoin is the world‘s first encrypted digital currency. El Salvador is a “crab-eater”-the first country in the world to use Bitcoin as a legal currency. No matter what happens next, what has already happened in El Salvador has at least a “demonstration effect”, providing experience and lessons to those who come.
China was once regarded as the largest country for Bitcoin mining. Recently, the indebted real estate industry represented by Evergrande led to a wave of selling, which has also brought further impact on the international market of encrypted digital currencies, including Bitcoin.
Why should El Salvador be No. 1 in the world?
In early June 2021, El Salvador, a small country in Central America, became the first country in the world to announce that it would officially use Bitcoin as a legal currency.
El Salvador’s President Booker said at the time that the move would make it easier for Salvadorans living abroad to send money home. Other considerations of the authorities include attracting investment, financial inclusion, and currency diversification.
The Salvadoran Congress immediately approved the relevant legislation, and 90 days later, in early September 2021, Bitcoin and the U.S. dollar became the legal tender of El Salvador.
This law means that every business in El Salvador must accept Bitcoin as the legal tender for goods or services, unless it cannot provide the technology needed to process the transaction.
On the day when Bitcoin was officially used as legal tender, the Salvadoran government also purchased a total of 400 Bitcoins, which were valued at about 21 million U.S. dollars at the time.
Image source,Reuters
El Salvador’s President Booker said that it is easier for Salvadorans living abroad to send money home with Bitcoin.
Earlier, the Salvadoran government launched the Bitcoin digital wallet Chivo and also set up a number of Bitcoin ATMs.
The economy of El Salvador is heavily dependent on money returned to the country from foreign currencies. These remittances account for about 20% of the country’s gross domestic product (GDP). The population of El Salvador is less than 7 million. However, more than 2 million Salvadorans live abroad but continue to maintain close contact with their place of birth and repatriate more than US$4 billion each year.
What happened after Bitcoin became legal tender?
After El Salvador listed parliamentary bitcoin as legal tender in June, although there have been a lot of opposing views and controversies, the value of bitcoin has risen sharply.
But after the first day that El Salvador adopted Bitcoin as its legal currency, as many Bitcoin ATMs failed to work due to technical failures, angry protests broke out across El Salvador.
Internationally, the value of each bitcoin has plummeted by about $10,000 from its peak a month ago.
An opposition politician in El Salvador said that the decline caused an immediate loss of $3 million in one of the poorest countries in Latin America.
The results of Bitcoin after its launch in El Salvador are far from what President Booker had imagined when he began his bold experiment. The El Salvadoran government bond market also experienced a flash crash following the country’s use of Bitcoin.
At least thousands of people took to the streets of El Salvador’s capital to protest, and even burned down Bitcoin ATMs and violent conflicts.
Image source,AFP
Some Salvadorans smashed Bitcoin ATMs.
What do all parties think about Bitcoin as a legal currency?
Although the American chain brands McDonald’s and Starbucks started accepting Bitcoin payments in their domestic franchise stores in El Salvador, many international brands in El Salvador remained cautious and did not join the official Bitcoin trend.
Platforms such as Apple in the United States and Huawei in China have not provided Chivo, a digital wallet supported by the Salvadoran government. And Chivo’s server had to go offline after being unable to keep up with user registration.
Many authoritative international financial institutions initially did not support El Salvador’s use of Bitcoin as legal currency. For example, in June, the World Bank rejected El Salvador’s request to help implement Bitcoin as legal tender.
Some senior figures in international financial institutions even believe that Bitcoin will eventually fail to exist due to lack of sovereign support.
For a long time, the transparency of Bitcoin mining and its negative impact on the environment have attracted attention.
In addition to the possibility of financial instability, there are also concerns that Bitcoin may be used for large cross-border financial transactions such as tax evasion and money laundering because there is no government supervision.
What are China’s recent initiatives?
China used to be the largest country in the world for Bitcoin mining. China does not recognize the legal status of Bitcoin, but domestic local governments once supported mining to attract investment.
Encrypted digital currency mining consumes a large amount of electricity energy that China mainly relies on coal-fired power, posing an indirect threat to China’s emission reduction efforts.
A large amount of capital has been transferred from financial projects or transactions involving some Chinese state-owned banks to the use of unofficial encrypted digital currencies such as Bitcoin. China’s financial regulatory authorities believe that Bitcoin may pose a great hidden danger to China’s financial system.
Image source,EPA
The Evergrande debt crisis also led to a sharp drop in the value of Bitcoin.
China’s financial regulatory authorities began interviews with many financial institutions, including state-owned banks, in June 2021, and explicitly prohibited localities from indulging in Bitcoin mining.
The “fighting” of El Salvador was once regarded by Bitcoin speculators as the beginning of its bright future. But judging from the current situation, the fact seems to be the opposite.
However, when the value of Bitcoin fell sharply in late September, El Salvador’s President Booker announced that he had bought another 150 Bitcoins, bringing the total number of Bitcoins held in the country to 700. He said this is a good time for bargaining.
Whether El Salvador can “turn things around” and not only stabilize its own economy, but even attract more countries to designate Bitcoin as a legal tender, it is currently uncertain. However, when the world economy is facing many unknowns, investors now prefer to see, perhaps cash or in kind with sovereign significance.