Bitcoin cryptocurrency slumped when it was introduced as a currency in El Salvador: "Chivo" wallet stuck, Coinbase reports problems

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Protests in San Salvador:

horror trip instead of jubilee

Photo: Rodrigo Sura / EPA

El Salvador's President Nayib Bukele had imagined the Bitcoin premiere differently. The smallest country in Central America is not often in the focus of the global public: The day on which El Salvador was the first country in the world to introduce Bitcoin as an official means of payment should be a day of joy for the highly indebted state with its around 6.5 million inhabitants. Forget your worries and debts for once and instead enjoy the full attention of the global financial world.

The attention around the globe was then even greater than Bukele would have liked.

The crypto currency Bitcoin collapsed in double digits on Tuesday, thousands of citizens of the Pacific state had problems downloading the state Bitcoin wallet "Chivo" at all, and car tires burned at a demonstration in the capital San Salvador against Bitcoin and Big Money.

Bukele, who frantically bought 150 Bitcoin worth around 7 million dollars in the midst of the price plunge, also received bitter criticism from the World Bank and the World Monetary Fund: Instead of putting himself at the top of the crypto financial scene, he is now threatening his most important financiers on whose real money he urgently needs.

Problems with the Chivo wallet - and with internet access

El Salvador's citizens could save more than $ 400 a year in bank fees and transaction costs if they bet on Bitcoin in the future.

That was the promise of the president, who is popular in the country but also likes to act in a populist way.

In addition, thousands of citizens who do not have their own bank account would have access to financial services in the future.

What sounds plausible in theory often has a catch in practice: Around half of El Salvador's citizens not only have little money, they also have no access to the Internet.

And many who have network access can only use it sporadically.

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President Nayib Bukele: "It doesn't all work out in one day"

Photo: JOSE CABEZAS / REUTERS

The start of the digital wallet "Chivo" was correspondingly bumpy: Bukele had promised every citizen a bonus of 30 US dollars who activated the wallet.

But Chivo was not available in Apple's App Store, Google or Huawei until noon on Tuesday.

The president felt compelled to tweet pressure ("Release him! @Apple @Google and @Huawei") - and even when the new wallet was available from Apple and Huawei in the afternoon, numerous users had problems with the download.

Bitcoin trader as a party killer

At this point, the Bitcoin price slide was already in full swing. Shortly before the premiere day, El Salvador had invested $ 20 million in the purchase of 400 Bitcoin - a surge in demand that carried the cryptocurrency over the $ 52,000 mark for a short time. But according to the motto "sell on good news", numerous Bitcoin traders around the globe first cashed in and sent the crypto currency down to 44,000 US dollars: around 180 billion dollars of market value vanished within a few hours.

Whether a country like El Salvador celebrates a happy or rather sad Bitcoin premiere does not matter in global crypto trading.

Even when Bukele then took another 7 million US dollars in hand to support the tumbling currency with the purchase of 150 more Bitcoin, this was not crowned with success: Instead, the realization spread that a lot more money would be necessary to stop such a downward momentum.

Bukele's hectic Bitcoin re-purchase has "underscored the difficulty of protecting the value of Bitcoin's own currency," said Nana Otsuki, chief economist at Monex Securities.

"The purchase didn't seem effective in stopping the decline."

Gradation instead of jubilee

The news that you can now pay for your cheeseburger with Bitcoin at McDonald’s in San Salvador and that some ATMs in the country are now equipped for exchanging cryptocurrency for fiat money was not a good global mood lift.

On the contrary.

The World Bank and the World Monetary Fund, which keep the highly indebted country afloat with ever new loans, view the president's crypto party with great skepticism.

A spokesman for the World Bank had made it clear before the currency was introduced that El Salvador's Bitcoin activities would not be supported in any way.

And the International Monetary Fund is examining whether the planned IMF loan of one billion dollars can actually flow in full.

The rating agency Moody's first downgraded El Salvador's creditworthiness on the day the Bitcoin was introduced.

The country's financial instability could increase due to the strong fluctuations in the price of Bitcoin, so the fear in the market.

In addition, the risk of money laundering increases.

The country's dollar bonds came under pressure on Tuesday.

Bukele: "Problems are not solved in a day"

Bukele does not challenge any of this.

The 40-year-old president, who is being viewed critically by the US government for possible corruption offenses, is seeking re-election - although this is not actually provided for in the country's constitution.

"As with all innovations, there is also a learning curve with the introduction of Bitcoin," the unfortunate president defended himself on Tuesday.

"After all, you can't achieve everything in a day or a month".

Bitcoin traders around the world have a little less patience.

Numerous crypto exchanges such as Coinbase, Kraken and Gemini had technical problems at times on Tuesday when the price plummeted and the trading volume soared.

This also increased the nervousness of the crypto community.

Crypto exchange Coinbase has stress with SEC

On Wednesday, the major crypto exchanges reported normal operation again, the price of Bitcoin fluctuated around the $ 46,000 mark one day after the price crash, barely changed.

The news that the largest US crypto exchange Coinbase is having a dispute with the SEC: Coinbase wants to enable its users to "crypto lending", giving them the opportunity to lend Bitcoin and Co and collect interest for it.

Now the SEC is threatening a lawsuit.

Therefore, the planned introduction of the program will be postponed until at least October, announced Coinbase legal director Paul Grewal on Wednesday.

"The SEC has told us that they want to sue us. We don't know why," said Grewal.

Statements like these increase the concerns of the crypto community that governments in the USA, Asia and Europe will intervene in the crypto business with stronger regulation in the future.

Such interventions are hardly threatened in El Salvador.

After all, the country on the Pacific coast wants to get the reputation of "Bitcoin Beach".

But if the new local currency Bitcoin continues its slide, the coming weeks will likely be anything but a walk on the beach for President Bukele and his citizens.

la / mmo