Today Bitcoin has become legal tender in El Salvador. With BTC now a parallel legal tender alongside the US Dollar, this development makes the Central American country the first in the world to adopt the cryptocurrency as an official medium of exchange. This follows the Bahamas launching a central bank-backed digital currency earlier this year, as well as Venezuela launching its own e-money called the Petro. But the adoption of Bitcoin itself as legal tender could prove to be a landmark event for the decentralised finance (DeFi) space.
President Nayib Bukele announced in June that his government was to introduce a bill to Congress making BTC legal tender in El Salvador. The President pointed out that around 70% of the country’s population remains unbanked and operates in a sphere separate to that of the traditional financial institutions. He believes this initiative could bring more people into the financial system. The President also argued that the widespread adoption of BTC would help Salvadoran expatriates send money back home more easily and, by cutting out the intermediary fees levied by the banks, increase the total amount of money received by those on the lowest incomes. Remittances, largely consisting of money sent back from those working in the US, make up around 20% of the country’s GDP. Reducing the amount of money that is diverted in intermediary fees could, Bukele believes, be a major economic boost to the nation. As he said at the time:
“A big chunk of those six billion dollars [sent to El Salvador by expatriates] is lost to intermediaries. By using Bitcoin, the amount received by more than a million low income families will increase in the equivalent of billions of dollars every year.”
El Salvador has faced opposition to this. The World Bank declined a request to assist the Salvadoran government in its adoption of Bitcoin, citing transparency concerns and issues surrounding the environmental impact of mining. The International Monetary Fund (IMF) warned that the use of Bitcoin was too risky owing to the market’s volatility. Initially, news of Bukele’s plans also triggered a sell-off of El Salvador’s dollar-denominated bonds on the global markets.
The government pressed on, however, and yesterday the President took to Twitter to announce that his administration had bought 400 BTCs. These are worth around $20 million at the current market value – and he also pledged to purchase “a lot more” of the crypto. To encourage its widespread use, the government has introduced the Chivo platform, a digital wallet available to any Salvadoran citizen who registers with their national ID number. The wallet will come preloaded with $30 worth of BTC for every user.
Whilst many Salvadorans remain sceptical about the project’s viability – only a third of the nation’s population use the Internet, with a quarter living below the poverty line – leading figures in the crypto industry have largely met this development with glee. Prominent Twitter accounts and Reddit forums have urged people to purchase $30 of BTC to mark “Bitcoin Day” – with some calling for this to become an annual event on 7th September. Danny Scott, the CEO of cryptoexchange CoinCorner, was just one:
MicroStrategy, which is the world’s largest corporate investor in BTC and holds almost 109,000 Bitcoin currently worth approximately $5.5 billion, is also joining in. Their CEO, Michael Saylor, has also urged mass $30 purchases to take place today as an act of “solidarity with the people of El Salvador.”
In anticipation of events in El Salvador, the crypto recovered from a rout earlier this year to trade strongly above $50,000. In theory, a global price pump could see its price reach and surpass all-time highs. But will this price pump work? It is difficult to say. After all, BTC has a market cap that is again approaching $1 trillion. Given how liquid the market is, any move would have to be colossal, involving huge numbers of people each trading what is in any case a relatively small sum. In other words, Bitcoin Day would quickly have to become a widely recognised feature of the crypto community’s calendar. Whilst this may yet transpire, as Vijay Ayyar, Head of Asia Pacific with Luno, said to Bloomberg: “Saying something and actually doing it are very different.”
Such coordinated action on Reddit and other social media platforms has echoes of previous campaigns, such as those which drove the price up of “meme stocks” like GameStop. Users of the prominent r/Bitcoin forum can be seen discussing mass purchases of $30 or more in a bid to drive up the price of BTC and thereby “show El Salvador that Bitcoin has value for them.” Others suggest that such a move could increase “the value of their [Salvadorans] wallets.” Many seem more interested in the symbolic value of the act as a “support gesture” rather than seeking financial reward. Either way, it is another fascinating example of how collective moves devised on social media increasingly have the potential to move markets.
This is a landmark day for Bitcoin as it faces its greatest challenge yet. Can it prove its viability on a national scale? Can it help solve some of the problems of a nation traditionally plagued by poverty? Can it stand alongside, even surpass, the US dollar as a legal tender? Whilst these questions remain to be answered, for now crypto users are celebrating what they see as another step forward in Bitcoin’s rapid rise.
Will you be purchasing $30 of BTC to mark Bitcoin Day?
Author: Harry Clynch
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