Bitcoin crashes by 16% on the day it becomes legal tender in El Salvador
September 7, 2021
El Salvador, a country in Central America officially announced in June this year that it will be adopting Bitcoin as a legal tender after a majority vote in Congress. Today marked a historical day as El Salvador became the first ever country to adopt a cryptocurrency as its national legal tender alongside the US dollar.
The original announcement was treated as extremely bullish news as investors began to pile in, rising Bitcoin's price from $29,000 to $52,000 in a little over a month. However, it seemed to have been the typical "buy the rumor, sell the news" event as the flagship cryptocurrency flash crashed to $42,800 within the last few hours resulting in over $2.8 billion worth of liquidations.
Nayib Bukele, the president of El Salvador, proved that he was one step ahead of the investors and the panic sellers by tweeting that he had waited and bought the dip adding another 150 bitcoins thus bringing their total amount in reserve to 550 BTC.
The 40 year old president also revealed that he had plans to spend over $225 million to help the process of adoption in his country and every individual who downloaded and used the government owned Chivo cryptocurrency wallet would be awarded with $30 worth of bitcoin. This resulted in the wallet having to go offline temporarily as a flurry of new users quickly exhausted the existing server load capacity.
Burkele later replied to his original tweet, thanking the International Monetary Fund(IMF) for helping his country "save a million in printed paper" on his latest 150 BTC purchase. The IMF had previously warned the country, going against its decision to adopt Bitcoin as a legal tender since the IMF's aim is to centrally plan the economy of a country which was in direct contrast of Bukele's decision of using a decentralized currency.
Bitcoin holders and enthusiasts around the world supported the country's decision on Tuesday by by asking the entire community to buy $30 of bitcoin each to match the $30 given to Salvadorans who signed up for the Chivo wallet. Bukele tweeted about this historical achievement in Spanish saying - "Like all innovation, the Bitcoin process in El Salvador has a learning curve. Every road to the future is like this and not everything will be achieved in a day, or in a month. But we must break the paradigms of the past. El Salvador has the right to advance towards the first world."
El Salvador has been experiencing an economic crisis for several years as a result of persistent levels of gang violence and extreme levels of poverty spread throughout the country. Over 70% of the active population in El Salvador does not even have a bank account. President Bukele's decision, while risky, hopes to provide financial inclusivity, freedom, and hope back to his citizens as bitcoin provides everyone with an internet connection the ability to be their own bank.
Given that most of the crypto community is well acquainted with the volatility that follows such big events today's price fluctuations were expected by many of the analysts who warned of the incoming surge in volatility. However this move is expected to only be a short-term correction aimed at flushing out leveraged traders as the market prepares for the predicted new all-time-highs in the next quarter.