The price of bitcoin fell Tuesday after breaking through $52,000 late Monday,
reaching its highest level since May.
The price action comes on the day El Salvador is set to adopt the largest
cryptocurrency by market cap as legal tender, becoming the first country to do
so. Bitcoin dropped as much as 16% on Tuesday morning. It was last down about
9.5% and trading at $46,892.04, according to Coin Metrics. Ether fell 12% to
$3,441.21.
Crypto adjacent stocks MicroStrategy and Coinbase also lost about 9% and 4%,
respectively. Coinbase users were experiencing delayed or canceled
transactions at “elevated rates” in the morning, the company said in an update
on Twitter, but those issues were resolved by the afternoon. Major crypto
exchanges Kraken and Gemini were also investigating delays and performance
issues.
Early Tuesday El Salvador temporarily disabled Chivo, its government-run
bitcoin wallet, to increase the capacity of the servers, which were hindering
new users from installing it, President Nayib Bukele announced in a tweet at
about 7:00 a.m. EST.
“Any data they try to enter at this time will give them an error,” he said.
“This is a relatively straightforward problem, but it cannot be fixed with the
system connected.”
The market action is unsurprising, according to Leah Wald, CEO at Valkyrie
Investments, who said the news was largely priced into the market “a whil
“When this move was first announced, it didn’t have nearly as big of an impact
on price as some may have expected it might, possibly because El Salvador’s
population is less than New York City’s, but also because the announcement was
light on details and people were on the fence about how this was going to be
implemented,” she told CNBC, noting that much of El Salvador lives in poverty
and doesn’t have the internet or smartphone access required to participate in
the bitcoin network. “Transaction fees, processing times, and other hurdles
also make this feel more like a beta test rather than a solution to many of
the problems plaguing the country’s poor,” Wald added.
As part of the new law, businesses will be required to accept bitcoin for
goods and services, though merchants who aren’t technologically able to accept
bitcoin will be exempt. The government has installed 200 bitcoin ATMs around
El Salvador. It also bought 400 bitcoins worth about $20 million and is
preloading Chivo wallets with $30 worth of bitcoin for Salvadorans who
register.
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Some traders are saying on social media that they will be buying $30 worth of
bitcoin in their local fiat currencies to commemorate and support El
Salvador’s new law, at 3:00 p.m. ET. But bitcoin prices were sliding into the
afternoon anyway.
“What is most worth looking out for is whether or not neighboring countries in
Latin America, or those elsewhere around the world, begin to adopt bitcoin as
their national currency as well,” Wald said. “Should this occur, that is when
we could see a parabolic move higher, as the momentum gained from many
millions more people having instant access to crypto should result in more
adoption, more HODLing, and higher prices.” HODLing is crypto community slang
for the buy-and-hold investment strategy
