In recent news, Bitcoin experienced a huge crash from over $52,000 to under $44,000. It comes shortly after the introduction of new legislation in El Salvador. Bitcoin is now a legal tender in the country. So why did the introduction of this legislation cause such a crash and should other countries learn from these events?
Everyone in El Salvador must now accept Bitcoin as payment for goods or services. Corresponding legislation hit the books on September 7. The move is aimed at boosting the country’s crippled economy.
A survey by the Central American University found that only 4.8% of people in the country know anything about Bitcoin. Others have questioned Bitcoin’s exchange price as legal tender and warned of the risks of losing money when investing in cryptocurrencies.
It seems that these concerns were not irrational. After the law was passed, the national bitcoin system crashed on Tuesday. This crash marked the country’s move to be the first to officially launch itcoin. Naturally, it also sparked concern among many Salvadorans.
How did the crash happen?
On Tuesday, El Salvador’s national wallet system Chivo crashed as millions of people tried to buy bitcoin.
It is believed that the crash was caused by the large amount of users. They were trying to buy or sell bitcoin. President Nayib Bukele later confirmed that the wallet was taken offline due to problems. There is no information yet on when it will be back online.
The president explained that the server capacity has increased a lot. While the problem can be easily fixed, it will require the system to be shut down. The President tried to put the minds at ease. He asked for some patience.
It is believed that the crash was triggered by inexperienced traders who bought bitcoin for the first time. When the country introduced the coin as legal tender, citizens were offered $30 as compensation for buying Bitcoin. That fueled activity in a big way.
Despite the crash, El Salvador continues to promote its new legislation. But many citizens oppose the law. Professor at the El Salvador School of Economics Carlos Carcah argued that the introduction of Bitcoin “is neither necessary nor practical”.
The crash caused the bitcoin price to drop, but it slowly rebounded throughout the day. The coin currently sits at around $46,000, a big drop from its previous high of $52,000.