Bitcoin's sudden drop in value, triggered by the collapse of cryptocurrency exchange company FTX, dealt a "deadly blow" to the Central American nation of El Salvador.
The most popular crypto token saw a 21 percent drop in its value, with its price hitting the lowest in two years. While the ongoing global economic recession seriously affected the digital currency, the collapse of FTX and its subsequent bankruptcy filing served as the latest hurdle.
The crypto turmoil has also affected El Salvador, home to 6.5 million. Salvadoran President Nayib Bukele, who made bitcoin legal tender in the country back in September 2021, invested part of the nation's coffers in the asset. But this proved to be a bad decision, as the country's digital tokens have lost 67 percent of their value since then.
Based on Bukele's social media postings, the government in San Salvador appears to have lost an estimated $70 million to bitcoin's depreciation.
Ricardo Castaneda, an economist at the Central American Institute of Fiscal Studies (ICEFI), remarked that bitcoin's drop translates to "a very high opportunity cost for a country like El Salvador." He explained: "It represents, for example, almost the entire budget of the Salvadoran Ministry of Agriculture and Livestock in a country where half the population suffers from food insecurity."
In turn, Bukele blasted critics of his espousal of crypto in a Nov. 6 article published in the digital Bitcoin Magazine. The Salvadoran leader argued that claims of the Central American nation incurring losses were "false" as it has not sold its digital tokens.
"For those who do not understand, the real question is not whether other countries will adopt bitcoin, but when," he said. "We are at a very early stage of this paradigm shift, and that is why commonsense action is controversial. There are many people who applaud it, but many more detractors."
People distrust bitcoin despite Bukele encouraging its use
According to Castaneda, Salvadorans harbor a mistrust of bitcoin despite Bukele pushing for its daily use. The ICEFI economist added that only two percent of money transfers from abroad are made in bitcoin. During the initial period of bitcoin's adoption as legal tender, remittances from overseas were seen as an opportunity for the digital currency.
"People have experienced firsthand the volatility and the problems associated with the lack of transparency," he said. "It is no longer the case that someone else is going to tell you about the implications of investing in bitcoin. In this scenario, citizens themselves have decided not to use bitcoin."
Castaneda commented that the losses incurred by bitcoin "are pretty much a deadly blow to the possibility of a massive adoption of cryptocurrency in El Salvador." He continued: "What happened … only aggravates this distrust, and I would say that it is very difficult to find a way back from this point."
In fact, this distrust had been evident since the first day of the rollout of the country's Chivo digital wallet in September of last year. The Wall Street Journal (WSJ) reported on the roadblocks encountered by Salvadorans who tried – and failed – to download the app.
Many people who attempted to download Chivo on Sept. 7, 2021 were unable to do so due to heavy bandwidth traffic, forcing authorities to take the e-wallet down for a few hours. On the other hand, those who succeeded in doing so were unable to register using their phone numbers or official IDs. (Related: El Salvador adopts bitcoin as legal tender to unsteady start characterized by glitches.)
The Chivo e-wallet was met with opposition from average Salvadorans.
Student Daniela Romero warned that if people "don't understand Bitcoin, then people will lose money when the price drops." Entrepreneur Oswaldo Serrano, meanwhile, zeroed in on possible privacy concerns: "You hand over all your data to the government, your financial movements, what goes out and what goes in."
Castaneda told the WSJ that time that Bukele and his government are "betting more than $200 million in a virtual casino, and that's taxpayer money."
The economist later observed a "paradox" in the case of the Central American country.
"El Salvador was the first country in the world to make bitcoin legal tender, but it is very possible that El Salvador is also the country where the highest percentage of people do not want to use bitcoin."
BitcoinCollapse.news has more stories about the collapse of cryptocurrencies.
Watch this video about Salvadoran President Nayib Bukele's move to adopt bitcoin as legal tender.
This video is from the Iron Age News channel on Brighteon.com.
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