Recall that last September, El Salvador became the first country in the world to officially adopt Bitcoin as a legal tender, making the cryptocurrency an accepted means of exchange for goods and services.
The government rolled out a digital wallet called Chivo that its citizens had to download for holding Bitcoin and converting it into US dollars, which has been the country’s official currency since 2001.
Due to the volatility of the crypto market, the decision by the government of El Salvador to adopt bitcoin as a legal tender, triggered a lot of negative reactions from analysts including the World Bank and IMF. The citizens of El Salvador never liked the idea, which led to a protest, but it however fell on deaf ears, as the government was making Bitcoin its legal tender.
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President of El Salvador Nayib Bukele disclosed his reason, stating that the commitment to adopt bitcoin will help the country’s struggling economy. However, many citizens claimed that the innate volatility of cryptocurrency has already negatively impacted the nation’s financial standing.
No doubt bitcoin has been the cryptocurrency with the best performance in the decade, however, the recent market has been disappointing to many investors across the world, as there is a massive decline.
Since El Salvador approved Bitcoin as a legal tender, according to calculations by Bloomberg, it disclosed that the nation has lost almost $56 million by gambling on digital assets. The country’s loss since the adoption of Bitcoin as a legal tender now represents more than half of what the government spent on purchasing it.
Despite cryptocurrency tumbling continuously, on a pace which is said to be its longest losing streak since 2014, President Bukele Nayib doesn’t seem perturbed by the bear market, as he recently hinted via a tweet that the decline may represent a buying opportunity.
From the look of things, El Salvador’s investment is rapidly losing value. Last September, the government of El Salvador purchased 2,301 bitcoin that were worth $103 million, now with the recent decline in the crypto market, they are currently worth around $51 million.
The government has kept buying the dip, which saw them purchase 500 Bitcoins last month, for more than $30,700 each. Now with the current price of Bitcoin around $23,000 which is still declining, this further shows that every dip bought by the country accrued more loss as they never made any profit.
El Salvador’s adoption of Bitcoin as the country’s legal tender attracted the attention of the International Monetary Fund (IMF) who demanded that El Salvador liquidate its bitcoin holdings and abandon the cryptocurrency as a legal tender.
This statement infuriated the government of El Salvador who issued a rebuttal statement, stating that no International organization is going to make them do anything against their will.
The World Bank on the other hand also rejected a request to help El Salvador implement Bitcoin as a legal tender, citing the environmental and transparency shortcomings.
Looking at how volatile the crypto market is, which is often controlled by individuals, it is an unwise move for the government of El Salvador to adopt Bitcoin as its legal tender. This is more like gambling away taxpayers’ money on highly volatile investments, which is not a good way to run a country.
Bitcoin was designed to be an alternative payment system, which is mostly unregulated and volatile, and is often used for speculation of prices. If Bitcoin continues to decline, the country runs the risk of losing its treasury reserve.