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Bitcoin flip-flops as El Salvador adopts it as legal tender

·2-min read
The price of bitcoin was volatile on Tuesday (Getty via AFP)
The price of bitcoin was volatile on Tuesday (Getty via AFP)

The price of bitcoin was volatile on Tuesday as El Salvador officially adopted the cryptocurrency as national tender, despite rising misgivings from international regulators and some Salvadorians.

President Nayib Bukele today said his government had bought 200 bitcoin — worth almost $10.5 million — on behalf of the Central American nation, to double its national holding.

News of the purchase came as legislation took effect to make it a legal tender in El Salvador, a world first.

Some Salvadorians have protested to adoption of bitcoin in their country, saying citizens have not been told enough about how to use it. The International Monetary Fund also has misgivings about its volatility.

Cryptocurrency enthusiasts see El Salvador’s adoption of bitcoin as a key validation of the technology, and the digital currency was initially trading up around 1% higher $52,340 early on Tuesday morning. However, the world’s biggest cryptocurrency had fallen back to $51,102 by midday – a drop of 1.6%.

“It’s this volatility that has made many in El Salvador less than optimistic about the currency’s adoption,” said Susannah Streeter, a senior analyst at Hargreaves Lansdown. “It is a huge gamble for the country’s payment system given that making transactions in the currency when the future price is so uncertain is risky.”

El Salvador’s decision to press ahead with bitcoin adoption comes as regulatory scrutiny of cryptocurrency increases around the world.

Charles Randell, chair of the UK’s Financial Conduct Authority, said in a speech on Tuesday evening that more powers were needed to crackdown on the crypto world. He warned that scams were rife in the sector and said too many consumers appeared to be making uninformed decisions about crypto. He specifically called out Kim Kardashian, who recently used her Instagram account to advertise the crypto token Ethereum Max.

“Social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation,” Randell said.

Randell’s comments echo those of new US Securities and Exchange Commission chair Gary Gensler, who said in one of his first speeches that consumer protection in the crypto space was a top priority under his watch.

Charles Hayter, chief executive of data provider CryptoCompare, told the Standard: “The FCA is right to highlight the number of scams and to start bringing the long arm of the law to bear.

“The problem is a lot of these scams are difficult to trace and cross jurisdicational and tends to be a game of whac-a-mole.”

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