Bitcoin’s value has dropped 22% in the last five days as speculators race to sell the cryptocurrency amid fears that an asset bubble is about to burst.
After the world’s most popular cryptocurrency lost a trillion dollars in value in 2 months, the average bitcoin buyer is now in the red.
El Salvador, which staked its economy on bitcoin’s growth when it became the first country to make cryptocurrency legal tender in September 2021, has lost more than half of its bitcoin holdings, and the meltdown could spell the end for the country’s national crypto experiment.
El Salvador has put a lot of money into developing and promoting the bitcoin infrastructure, which President Nayib Bukele claims would make it easier for Salvadorans to access banks and save money.
Most Salvadorans have spurned cryptocurrency in favor of the US dollar, thus those promises have yet to be fulfilled.
In addition, the Central American country spent an estimated $105.6 million of taxpayer money buying bitcoin in the hopes of increasing its value. Bukele has bought more each time its value has plummeted, live-tweeting the acquisitions.
El Salvador’s finance minister, Alejandro Zelaya, said at a news conference on June 13 that the bitcoin fund’s risk was “very modest” and that the country had incurred no losses because it had not yet liquidated its holdings.
“Forty million dollars is less than 0.5 percent of our national general budget,” Zelaya explained.
However, in a low-income country with a population of 6.5 million people, mounting debt, and an economy less than a hundredth of the size of the UK, the reduction in value is a significant sum.
The Salvadoran government won’t reveal its bitcoin spending, but David Gerard, author of Attack of the Bitcoin ATMs, estimates that the cost of buying bitcoin, installing bitcoin ATMs, and developing software has cost El Salvador at least $200 million.
“But it hasn’t merely squandered that cash.” “Bukele has enraged the World Bank, the IMF, and everyone else from whom he needed to borrow money to pay his bills,” Gerard says.
As El Salvador’s bitcoin gamble fails, experts are growing concerned that the country may default. According to Bloomberg, the country’s credit rating has been regularly reduced since it adopted bitcoin, and its debt payments are being purchased at a steep discount as investors fear it won’t be able to make them.
A billion-dollar bond that was scheduled to be issued in March could have helped El Salvador raise funds outside of usual markets, but it has been postponed due to market conditions.El Salvador’s national bitcoin campaign was already failing prior to the recent price fall. Most Salvadorans abandoned the national bitcoin wallet after receiving a sign-up bonus, according to a research published in May, and those who do continue to use it exchange money rather than bitcoins.
According to Oscar Salguero, a software developer from San Salvador, bitcoin’s current price drop could be the final nail in the coffin for bitcoin in El Salvador. “Now that bitcoin’s price is rapidly falling, even fewer people will utilize it.”
According to Salguero, the money lost on bitcoin should have been used to alleviate poverty or a succession of national crises. El Salvador is currently wracked by severe floods and a brutal crackdown on drug gangs that has incarcerated nearly 2% of the adult population.
Salvadorans who trade or store bitcoin are now experiencing additional financial hardship on top of rising prices. “Everything is pricey, which means we’re not making any money,” explains Carolina Reyes, a food vendor in the vacation resort of El Palmarcito who accepts bitcoin. “And now everyone’s money is being lost in bitcoin.” Imagine!”Even if bitcoin’s value continues to fall, Bukele, an ex-marketer who has placed his image as a tech-savvy messiah on his cryptocurrency gamble, is unlikely to back down, according to several Salvadorans.
“They’ll never admit they’ve failed on this,” says Mario Gomez, a developer who was arrested by police for criticizing the bitcoin law.