El Salvador did what many might have considered, what others thought was madness, but what no one had dared to do until now. This country became the first in the world to make bitcoin a legal currency.
At the time bitcoin was approved as legal tender in El Salvador, the major cryptocurrency began to experience a quiet rise that would later culminate in a new all-time high. At the time, it seemed that the action taken by the president was not as bad as what was commented on by his opposition, but as is a regular occurrence in the cryptocurrency market thanks to volatility, everything what goes up must come down and since the beginning of 2022, bitcoin and the market in general have been going through difficult times.
It should be noted that when it was announced that El Salvador was going to adopt the law, no one else had carried out a similar project, which explains the surprise of the whole world. Some supported the decision and others considered it total madness. The truth is that the president of the country continues to bet on cryptocurrencies as he recently announced that he has plans to use volcanoes and geothermal resources to mine cryptocurrencies and plans to build the “Bitcoin City” which would be a tourist site in which only cryptocurrencies would be used.
The recession has left El Salvador on the brink
A fall in the cryptocurrency market and more specifically in bitcoin, which is the most important cryptocurrency and most of the time sets the tone, was predictable. That is why it is not excluded that the President of El Salvador has already considered this possibility and is waiting for the rebound of bitcoin, the fact is that it could take much longer than expected or it could never happen.
What we do know is that since the start of 2022, things have not been going well with bitcoin. The cryptocurrency suffered badly and the falls were bigger than market analysts expected. The market has suffered so much that the major cryptocurrency has positioned itself below $30,000 with downward oriented fluctuations and if we look at El Salvador’s data and the losses during this period, it is estimated that the crypto assets of the countries fell by more than 30%.
Last year, El Salvador held bitcoins worth around $105 million. And according to recent data, these holdings amount to just $68 million, which represents a loss of almost 37.5% in a fairly short period of time and has caused much of the money invested to evaporate. Last year.
El Salvador is in crisis
In recent weeks, the situation in El Salvador and the economic crisis it is going through have been the subject of much speculation. According to Ricardo Castañeda, an economist at the Institute for Fiscal Studies of Central America, said bitcoin by itself did not cause the financial crisis that El Salvador is facing. In reality, bitcoin has only made the situation much worse.
To understand this, we must take into account that the project to make bitcoin a legal currency in the country was aimed above all at helping the economy of the country. In 2020 El Salvador was heavily dependent on remittances from Salvadorans abroad. Therefore, bitcoin was adopted to reduce the value of transactions and thus bring more money into the country. Also, it was believed that using bitcoin would speed up transactions. It is clear that the project was presented as a solution for the country, but now it has become one of the problems to be solved due to the high amount of losses.
And if we add to this the fact that the International Monetary Fund has repeatedly asked El Salvador to remove the bitcoin law so that the country can operate on a regular basis, it is clear that El Salvador is not receiving the support. of international opinion.
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