Bitcoin's extreme volatility has become the norm—from hitting a historic high of $64,000 in April this year to losing half its value, only to recover and surpass $50,000. Ironically, as Bitcoin celebrated its "Legal Tender Day" in El Salvador, it marked the occasion with a dramatic crash.
Did El Salvador Make a Mistake?
On September 7 (UTC), Bitcoin’s price plunged from around $50,000 to a low of **$42,830**, an 18.73% drop within hours. Other cryptocurrencies followed suit, with losses cascading across markets.
Despite the crash, this date was historic: Bitcoin officially became legal tender in El Salvador, the first country to grant it such status. Ahead of the rollout, the Salvadoran government purchased 400 BTC (~$21 million), signaling strong institutional support.
President Nayib Bukele has championed Bitcoin adoption, claiming it could:
- Save $400 million annually in remittance fees for citizens abroad.
- Boost GDP by 25% if the country captures 1% of global Bitcoin investments.
- Enhance financial inclusion by providing access to credit, savings, and secure transfers.
Skepticism and Risks
However, critics argue Bitcoin’s instability undermines its utility as a hedge against inflation or a stable payment method. International bodies like the IMF and World Bank have warned of financial risks.
Will Other Countries Follow Suit?
El Salvador’s experiment has sparked debate:
- Bahamas and Venezuela have explored state-backed digital currencies (e.g., Sand Dollar, Petro).
- Investors remain divided—some view Bitcoin as a speculative asset, while others see long-term value.
Expert Take:
"Bitcoin’s price swings rarely correlate with macroeconomic fundamentals like inflation. It’s premature to call it an inflation hedge." — Eswar Prasad, Cornell University
FAQ
Q: Can Bitcoin replace the dollar in El Salvador?
A: No. The USD remains legal tender alongside BTC, giving citizens a fallback option.
Q: Will more countries adopt Bitcoin as legal tender?
A: Unlikely in the near term, except perhaps nations facing severe fiscal crises (e.g., Cuba).
Q: Is Bitcoin a reliable inflation hedge?
A: Evidence is mixed. Its volatility often outweighs its store-of-value potential.
👉 Why Bitcoin’s Legal Tender Status Matters
The Salvadoran model could redefine global finance—or serve as a cautionary tale.