Share Prices & Company Research

News

10 September 2021

El Salvador’s Bitcoin Experiment Goes Live

The story of Bitcoin and other cryptocurrencies is continuing to twist and turn after a year of dramatic highs and lows.

After rising to an all-time high value of around US$64,000 in April 2021, the price of Bitcoin fell to less than half that by July, owing to regulatory fears around the world, particularly in China.

Since then, however, Bitcoin’s price has fluctuated and, this week, its stock rose higher as El Salvador officially began to accept it as legal tender. In June, the country became the first in the world to adopt it and, this week, Salvadoreans have begun making everyday transactions using it.

Millions of people in the country are now expected to download Chivo, a digital wallet app, to store the cryptocurrency, while each citizen will also be given US$30 free Bitcoin. The government hopes that by making Bitcoin legal tender it will encourage more Salvadoreans living abroad to send money back to people in the country. By transferring Bitcoin rather than traditional currency, the government estimates that the country could save US$400m each year in transaction fees, although World Bank and government data suggests this is closer to US$170m.

The move is unprecedented and while it has been welcomed by many, others are more sceptical. The value of Bitcoin is extremely volatile and can rise and fall in price exceptionally quickly. For example, in the 111 days from 1st February 2021, its price rose from US$33,537 to its US$64,000 all-time high on 14th April, before crashing back down to US$33,449 by 23rd May.

Bitcoin’s volatility is worrying many in Latin America’s poorest nation. Since launching on Tuesday, protests have broken out amid a price crash blamed on technological glitches. Although citizens were encouraged to download Chivo, Apple and Huawei platforms weren’t offering the government-backed digital wallet, while servers were also taken offline as they couldn’t keep up with registrations. Some citizens are also concerned that Bitcoin may fuel illicit transactions.

The rollout is far from the success President Nayib Bukele would have hoped for. Before the Salvadorean congress voted on the proposal, President Bukele said in a tweet: “It will bring financial inclusion, investment, tourism, innovation and economic development for our country.” Previously, he said the move would also make financial services accessible to the 70% of the country’s population who do not have bank accounts.

It is clear that cryptocurrency concerns remain and extend far beyond the Salvadorean border. Regulators around the world have their eyes on the crypto industry, with some now also looking at its climate impact alongside other regulatory issues. Despite this, some analysts anticipate that Bitcoin could soon become the world’s primary currency, following the bold lead of El Salvador.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
El Salvador’s Bitcoin Experiment Goes Live
SUBSCRIBE TO OUR PUBLICATIONS
We offer complimentary investment publications produced by our in-house Investment Research team. Please click here to view our range.
We use cookies on this site to improve your experience and help us provide you with a better website. An explanation of the cookies we use and their purpose can be found within our Cookie Policy. Your continued use of this site means you consent to the use of cookies.