Bitcoin: Salvadorans are backing down

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Merchants are still required by law to accept bitcoin as payment currency, but many immediately convert to dollars.

A man walks in a marketplace where bitcoin cryptocurrency is accepted as payment, in San Salvador on May 24, 2022.

AFP

The dollar value of bitcoin has shrunk by almost half since it acquired in El Salvador in September 2021, like the dollar, the status of legal tender. But the law still obliges merchants to accept bitcoin as payment currency, but now the cryptocurrency burns their fingers and most rush to change it into greenbacks, like José Fredy Landaverde, who runs a clothing store in the capital. .

The function of immediate change in dollars exists on the virtual “wallet”, dubbed Chivo, created by the government of President Nayib Bukele to allow operations in cryptocurrency: merchants must accept payments in bitcoin, but they can not eliminate immediately. “When the customer pays us in bitcoin, we convert immediately into dollars,” explains the 44-year-old clothing merchant. If bitcoin goes up, it will do the opposite, he assures.

In September 2021, when El Salvador was the first country in the world to adopt bitcoin, the cryptocurrency was worth around $44,000, before soaring to an all-time high of $66,000 two months later. Since the record, the fall is 57%.

In the euphoria of the rise, President Bukele had built a public veterinary hospital and announced with great fanfare a Bitcoin City project near the Conchagua volcano that would provide him with renewable and inexhaustible energy.

negative spiral

The collapse of the cryptocurrency falls badly: the negotiation with the IMF of a loan of 1.3 billion dollars is bogged down for El Salvador, whose public debt is around 90% of GDP. At the beginning of May, the rating agency Moody’s downgraded the rating of Salvadoran debt.

In the center of the capital San Salvador, businesses removed signs that proclaimed “bitcoin accepted” and employees confirmed the drop in cryptocurrency transactions. Juan Carlos Canales, another clothing salesman goes so far as to say that he gave up bitcoin because “few customers” use it.

The cryptocurrency market is in “full turbulence”, Maximiliano Hinz, an Argentinian who heads the virtual currency platform Binance, told Panama. But “normally, when there is a downward correction, after that there is a rebound: when bitcoin touched 28,000 dollars, there was a historic peak in purchases” of the cryptocurrency, underlines t -he.

Cryptocurrency reserves

Thus, on May 10, President Bukele announced that he was taking advantage of the fall in the bitcoin to buy 500 of them, which went to swell the country’s cryptocurrency reserves, now at 2,301 bitcoins, each currently worth around 30,000 dollars.

José Fredy Landaverde, who says he has gone from an average of ten bitcoin sales to just four a day, is confident that cryptocurrency will return to favor with consumers, in a country where only 23% of the population have a bank account.

Former Central Bank President Carlos Acevedo is more pessimistic and, for him, the prospect of issuing cryptocurrency debt is remote, even if the fall of bitcoin is not so much El Salvador’s problem as “the weak growth and insecurity”.

(AFP)

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