Within one day of Bitcoin becoming legal in Central America, the government of El Salvador lost $3.1 million.
After months of speculation and headlines, the adoption of Bitcoin in El Salvador was finally made law on September 7. was passed in June. El Salvador had previously accepted only the US dollar. following its adoption in 2001.
The Salvadoran government saw the impending implementation as a sign of its commitment to the law. announce the purchase of 400 Bitcoin on September 6 — valued at $51,924 each at the time of the announcement, for a total value of $20.77 million.
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But the cryptocurrency’s value plummeted to $43,767 per coin within hours, to leave the total value of the investment at $17.51 million — wiping more than $3 million off of the value of the Salvadoran government’s initial investment in less than one day.
The news highlights one of the biggest concerns previously expressed about the adoption of Bitcoin in El Salvador — namely that the cryptocurrency’s volatility can come at significant cost — not only to the country’s coffers, but also to investors, businesses, and banks forced to adopt it.
Other concerns raised include security issues given the “transparency shortcomings” related to the difficulty of tracing the currency — which saw the World Bank refuse to helpThe government must implement its law.
El Salvador’s adoption of Bitcoin raises questions and uncertainty
Despite widespread concerns, President Nayib Bukele’s government has persistently pursued Bitcoin adoption.
The international community has expressed serious doubts about the adoption of Bitcoin in El Salvador and the speed at which it was pushed through.
Fitch Ratings released June’s rating highlighted serious concerns related to increased financial and regulatory risk associated with the adoption, “including the potential of violating international anti-money laundering (AML) and terrorist financing standards.”
El Salvador has accepted Bitcoin. caused widespread concernWith the local population, public protests seen in the country, owing to the cryptocurrency’s well-reported volatility, as well the risk of it being used for the likes of money laundering.
In the meantime concerns have been raised in neighbouring countries such as Honduras and Guatemala — both key trade partners of El Salvador — where many business leaders have expressed uncertainty about how the adoption of a currency that attracts significantly less confidence than the US dollar could affect commerce.
Strong investment opportunities are being distracted by crypto
One of the most regrettable outcomes of Bitcoin adoption in El Salvador is its emergence as a currency. distracted attention from a currently strong investment climate, amongst the Salvadoran central banking announcing anticipated GDP growthUp to 9% in 2021
That projection was made based on a mixture of industrial production, investment, household consumption, and exports — the sort of multiple driver-based growth that investors look for.
Despite concerns over the adoption of Bitcoins in El Salvador, however, banks in the country have made clearThey will be legally required to accept cryptocurrency but all aspects of their operations will still be done in US dollars.
This should reduce some of the most serious concerns about Bitcoin. Financial institutions will remain as protected from possible severe fluctuations in the currency as possible.
Meanwhile, with Bukele now more than two years into his five-year presidential term, his political fate looks to be pinned to the success of the Bitcoin law, after the country’s top court removed a constitutional limit on re-election.
It can be assumed, therefore, that if the government experiences financial losses as the one seen in the first 24 hour of the law’s implementation, Bukele and his group will end up paying for it at election time.
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