El Salvador Faces Uncertainty as Bitcoin Value Plummets

El Salvador faces uncertainty as Bitcoin value plummets and the crypto market faces major dips.

El Salvador’s venture into bitcoin is becoming increasingly dangerous as the value of the cryptocurrency plummets.

Last year, the Central American country made bitcoin legal tender for all transactions, making it the first in the world.

The whole crypto market’s value has plummeted in recent weeks, falling to $930 billion from $3 trillion in November.

El Salvador,Bitcoin Plummets
Photo Credit: Yahoo Finance

The most popular cryptocurrency, Bitcoin, has lost around two-thirds of its value.

El Salvador’s president, Nayib Bukele, proposed changing the country’s legal tender to a digital asset in 2021.

The government announced on Twitter that it had purchased 2,301 Bitcoins and has actively promoted the use of the virtual currency as a form of investment.

According to Bloomberg’s calculations, the already insolvent country will lose $56 million on its bitcoin assets.

The price of bitcoin continued to fall on June 16, marking the ninth consecutive day of losses.

Bitcoin is no stranger to volatility, but this is the longest losing streak since 2014.

The enormous drop in valuation, according to Bukele, is not a concern for the country or its coffers. He said on Twitter that the country’s loss from bitcoin isn’t a cause to stay away from it. Bukele, on the other hand, urged buying more bitcoin.

According to Bukele’s tweets, the country purchased another 500 bitcoin around a month ago.

El Salvador faces a number of challenges, including substantial budget deficits, an $800 million bond due in January, and a depleted cash reserve. The dollar debt of this Central American country is among the worst performing.

The country had been looking for new funding for a bitcoin-linked bond that had been stopped.

According to a ratings agency, the country’s adoption of bitcoin as legal cash “has raised doubt about the prospects for an IMF program that would unlock finance for 2022-2023.”

The country’s implementation of bitcoin as legal tender remains “the exception and not the model for the future,” according to William Je, CEO of institutional investing firm Hamilton Investment Management, in December 2021.

El Salvador’s decision to establish a second national currency is similar to the country’s 2001 decision to replace its currency, the colón, with the US dollar.

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What Led to the Massive Dip of Cryptocurrencies

Since its value is frequently based on market speculation, the bitcoin market has seen its fair share of volatility. Bitcoin’s value has dropped by almost 70% in the last eight months, compared to an all-time high of $69,044.77 on November 10. Currently, the digital currency accounts for 43.1% of the overall crypto market capitalization.

The decline in cryptocurrencies is part of a broader shift away from riskier assets, which has been fueled by rising interest rates, inflation, and economic uncertainty resulting from Russia’s invasion of Ukraine. These reasons have worsened a so-called pandemic hangover, which began when life in countries like the United States began to return to normal, damaging the stock values of companies such as Zoom and Netflix, which profited during the lockdowns.

Bitcoin’s progress determines the market’s value. It’s no wonder, then, that the market, worth just over $3 trillion at the start of November, lost more than $2 trillion due to the Bitcoin crisis.

Along with the general downward trend and the extreme volatility that the crypto industry experiences on a daily basis, bitcoin prices may soon go below the threshold of $20,000.

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