El Salvador Launched Bitcoin (BTC) as a Legal Tender and Crashed the Markets Briefly

El Salvador Launched Bitcoin (BTC) as a Legal Tender and Crashed the Markets Briefly

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Bitcoin dropped 16% from nearly $52K to about $43K. All leading cryptocurrencies dropped following it. Experts say that El Salvador is to blame.

Three months ago, the Parliament of El Salvador passed the Law recognizing bitcoin as legal tender along with the US dollar. The country has not had its own currency since 2001 when the Salvadoran colón was abolished and the American dollar used instead. By recognizing bitcoin, El Salvador, in practice, became the first country to use the leading cryptocurrency as a national currency.

90 days were given for the infrastructure development, which ended yesterday. During this time, the government purchased 400 bitcoins as a reserve fund. However, this was not the main idea behind the epic decision of the Salvadoran authorities. President Nayib Bukele, 40, hopes that the country starts mass mining of bitcoin, using cheap energy from the heat of volcanoes.

This task was set to the management of the state energy company LaGeo, which operates two geothermal power plants. A third new one with a capacity of 95 MW is built to power the mining pool. Every adult resident of El Salvador will get $30 worth of BTC as an airdrop. The estimated population of El Salvador is 6.5 million, the adult population is about 4 million. Therefore, for the airdrop it is needed about $120 million. The created reserve of 400 BTC is not enough for this, but the parliament is forming a trust fund for $150 million.

In the summer, protests raged in the country against the recognition of bitcoin as legal tender. Economists have warned that all dollars in El Salvador will be converted into cryptocurrency and withdrawn from the country, and this will lead to the final collapse of the economy. The International Monetary Fund was wary of the decision of the Salvadoran authorities, and the World Bank refused to support the transition to bitcoin. However, on September 7, bitcoin was introduced in El Salvador using the Chiva crypto wallet.

At the same time, massive bitcoin sales burst on exchanges and in the over-the-counter market. The whales rushed to take profit, doubting the success of the Salvadoran case. Miners also dumped their bitcoin reserves. Research firm Glassnode reports that miners sold around 2.9K BTC last week. The losses of traders on the fall of bitcoin are estimated at $3.5 billion.

However, almost immediately after the collapse, a rebound followed. And this is not a dead cat bounce. Crypto trading veteran Tone Vays believes bitcoin could return to a growth trajectory. Vays compares yesterday’s drop to similar crashes in March 2020 and May 2021, and states:

– I’m pretty sure [it] reminds people of some of these days, like May 19. And of course, you have to go all the way back to the Covid stuff of March 2020, when we had that big catastrophe of going from $8,000 down to $3,000 …

The expert suggests that bitcoin will quickly return to the price of $50K, and “in a week or two we will be at $60K.” The El Salvadorian authorities also used the market situation and bought another 150 BTC at the lows.