The dollar value of bitcoin has fallen by almost half, as did the dollar, legal tender status since it was acquired in El Salvador in September 2021: El Salvadorans have become accustomed to napping under the storm.
The law still obliges merchants to accept bitcoin as a currency of payment, but now the cryptocurrency is burning its fingers and most are in a hurry to change it to dollars, like José Fredy Landaverde, who runs a clothing store in the capital.
The instant dollar exchange function exists on a virtual “wallet” called Chivo, created by President Nayib Bukele’s government to allow cryptocurrency operations: merchants must accept bitcoin payments, but they cannot get rid of them immediately.
“When a customer pays us in bitcoins, we immediately convert them into dollars,” the 44-year-old clothing retailer told AFP. He assures that if bitcoin rises, he will do the exact opposite.
In September 2021, when El Salvador was the first country in the world to adopt bitcoin, the cryptocurrency traded for approximately $ 44,000 before reaching a historic high of $ 66,000 two months later. There is a decrease of 57% since the record.
In the euphoria of the rise, President Bukele built a public veterinary hospital and, with great pomp, announced the Bitcoin City project near Conchagua Volcano, which would provide him with renewable and inexhaustible energy.
The cryptocurrency decline is going badly: negotiations with the IMF on a $ 1.3 billion loan have stuck in El Salvador, whose public debt is around 90% of GDP.
Moody’s downgraded Salvadoran debt in early May.
In downtown San Salvador, businesses have removed signs saying “bitcoin accepted” and employees confirm declining cryptocurrency transactions. Juan Carlos Canales, another clothing retailer, goes so far as to say that he gave up bitcoins because they are used by “few customers”.
“It’s not common for people to take advantage of it, but we have an opportunity for those who want it,” said Jonathan Valdez, a waiter at a coffee shop in the capital.
The cryptocurrency market is in “full turbulence,” Maximiliano Hinz, an Argentine who runs the Binance virtual currency platform, told Panama.
But “normally, when there is a downward correction, then there is a rebound: when bitcoin reached $ 28,000, there was a historic peak in purchases,” the cryptocurrency emphasizes.
So on May 10, President Bukele announced that he was using the drop of bitcoins to buy 500 of them, which increased the country’s cryptocurrency reserves, now to 2,301 bitcoins, each currently worth about $ 30,000.
José Fredy Landaverde, who says that from an average of ten bitcoin sales to just four a day, he is convinced that cryptocurrency will return to the favor of consumers in a country where only 23% of the population has a bank account.
Former central bank president Carlos Acevedo is more pessimistic, and the prospects of issuing cryptocurrency debt are far away, although the fall of bitcoin is not so much a problem for El Salvador as “low growth and uncertainty.”
In addition, the “collapse” of bitcoin occurs when its use is not massive in the country, which is an “advantage”, the former president of the central bank emphasizes.
Since 2001, El Salvador’s annual economic growth has been 2 to 3%. According to the IMF, after a record post-pandemic growth of 10.3% last year, it should fall to 3.2% this year, the central bank predicts.
However, the country “will not be in arrears,” assures Carlos Acevedo. President Bukele could “reduce the liquidity reserves of the financial system so that banks can buy more public debt” or even “nationalize” pension funds, he suggests, among other things, possible means.