And sometimes those costs come from mistaking a lion for, say, an anteater. A puzzling remark, you say? Not if you’re Salvadoran:
Bitcoin’s value has plunged by 22 per cent in the past five days [late June – haw] as investors rush to sell the cryptocurrency amid fears that an asset bubble is bursting.
The average bitcoin buyer is now in the red after the world’s most popular cryptocurrency shed a trillion dollars in value in two months.
For El Salvador, which staked its economy on the success of bitcoin when it became the first country to make cryptocurrency legal tender in September 2021, the crash has wiped out more than half of its bitcoin holdings – and could be the death knell for its national crypto experiment. [“What will the crypto crash mean for ‘bitcoin nation’ El Salvador?” Luke Taylor, NewScientist (25 June 2022, paywall)]
Volatility is about the last thing you want in your national currency, so mistaking a volatile cryptocurrency, which may be little more than a sophisticated wealth-drainer, as a currency replacement turns out to be a critical intellectual failure.
And, one would think, easily predictable.
It’s worthwhile to note that most Salvadorans were great skeptics of the great experiment:
Prior to the latest price crash, El Salvador’s national bitcoin push was already failing. A study published in May found that most Salvadorans abandoned the national bitcoin wallet after receiving a sign-up bonus and most who continue to use it trade dollars, not cryptocurrency.
Whether those who did hold on to bitcoins were the working poor, the slender middle class, or the top of the heap is not clear. Will El Salvador try to apply muscle to make this experiment, apparently on its way to failure, work?
“They are never going to accept that they [president Nayib Bukele] have failed on this,” says Mario Gomez, a developer who was detained by police for criticising the bitcoin law.
For better news concerning cryptocurrencies, we can turn to Washington, D.C.:
A wave of notoriously risky cryptocurrency firms could one day be integrated into the traditional banking system under a little-noticed provision in a new bill that is raising alarms among financial experts about potentially destabilizing consequences.
The provision — part of a sweeping proposal to regulate the crypto industry that Sens. Cynthia M. Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) introduced in June — would force the Federal Reserve to grant so-called master accounts to certain crypto firms seeking them from the central bank. The accounts give holders access to the Fed’s payment system, allowing them to settle transactions for clients without involving a separate bank.
Two Wyoming-based crypto firms championed by Lummis stand to benefit. Both companies, Custodia Bank and Kraken Financial, have been stymied over the last two years in bids to gain Fed master accounts. But financial regulators and experts say the measure’s impact would cascade through the industry and beyond. [WaPo]
I freely admit that I do not ken (grok for you SF fans) all the consequences of such legislation, but then we pay financial regulators to be experts in this sort of thing. I can’t help but notice that, given the failure of cryptocurrencies to behave like traditional currencies, this seems like quite the foolish action. Is someone inserting a shunt into our financial system?
And how is bitcoin doing these days?
Not recovering since last time I checked. I don’t sense this to be an opportunity.
