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.
If any of you lacks wisdom, let him ask of God, who gives to all liberally and without reproach, and it will be given to him.” James 1:5
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.”
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