In recent news, Bitcoin experienced a huge crash dropping from above $52,000 to below $44,000 (according to MarketCap). This crash follows shortly from the rollout of El Salvador’s new legislation, making Bitcoin a legal tender in the country. So, why has the introduction of this legislation led to such a fall and should other countries learn from these events?
A legal tender is any form of currency that must be accepted, by law, and payment for goods or services. El Salvador officially made Bitcoin a legal tender on the 7Th of September, following beliefs that the legislation would help to boost the country’s crippling economy.
The new law has been met with division from the start, with a survey conducted by the Central American University showing that only 4.8% of people know what Bitcoin is and how to use it. Others have questioned the exchange price of using Bitcoin as legal tender and have warned against the risks of losing money when investing in crypto.
It seems that these concerns were not irrational as the country’s national Bitcoin system crashed as the legislation was passed on Tuesday. This crash marked the country’s move to be the first to make Bitcoin a legal tender and caused worry amongst many Salvadorians.
Why did the crash happen?
On Tuesday 7th of September, El Salvador’s Chivo wallet system crashed after millions of people rushed to buy Bitcoin.
It is thought that the crash was caused by the huge amount of people rushing to buy and sell coins as the country legalised the use of Bitcoin as legal tender. President Nayib Bukele later confirmed that the wallet had been taken offline following problems but did not give any indication as to when it would be back online.
The president explained that the server capacity has experienced large increases and that this problem was fairly easy to fix; however, to do this the system must be disconnected. The President attempted to calm the waters by stating that it’s better not to rush and that patience is needed.
It is thought that the crash was influenced by inexperienced traders buying Bitcoin for the first time. As the country made the coin legal tender, citizens were offered $30 as compensation for buying Bitcoin, which would have fueled large amounts of activity.
Despite the crash, El Salvador continues to promote its new legislation, despite many citizens being opposed to the law. Carlos Carcah, professor at El Salvador’s school of economics and business, argued that the adoption of Bitcoin “is not necessary, nor convenient.”
The crash caused the price of Bitcoin to fall however, it has slowly increased throughout the day. The coin currently sits at around $46,000, a large drop from its previous high of $52,000.
Contributors
