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El Salvador continues to support Bitcoin amidst crypto sell-off

On November 26, El Salvador President Nayib Bukele tweeted that El Salvador bought the dip and acquired 100 more Bitcoins with a discount on the Friday sell-off during the country’s Black Friday celebration. Meanwhile, the crypto market dipped billions of dollars on the same day with the advisory of the World Health Organization (WHO) classifying a new Covid-19 variant that was first detected in South Africa. 

The highly transmissible virus called Omicron gave the crypto community a scare that caused the Bitcoin price to fall from $59,165 on November 25 to $53,798 on the afternoon of November 26. In an interview with Reuters on November 26, Yuya Hasegawa, a representative of the Tokyo-based crypto exchange Bitbank, said that ‘the spread of the variant (Omicron), especially to other countries, could wither investor appetite further’. Hasegawa even added that the upside of BTC would likely be limited, urging the crypto market to brace for further loss. 

This dip in the price of Bitcoin can visibly affect the economy of El Salvador since the country has officially recognized Bitcoin as a legal tender on September 7. Since then, the country has purchased a total of 1,220 BTC as of November 26. All of these coins approximately amount to $66.9 million. 

El Salvador’s support for Bitcoin was further shown when during a promotional Bitcoin event in the coastal town of Mizata on November 21, Nayib Bukele announced his plan to build a Bitcoin city financed by a Bitcoin bond of about $1 billion. The city would be powered by a volcano in the southeastern region of La Union. 

However, El Salvador’s move to build a Bitcoin city and continuously support Bitcoin was heavily opposed by the International Monetary Fund (IMF). The IMF warned the country against cryptocurrency in their Staff Concluding Statement of the 2021 Article IV Mission for El Salvador on November 22, saying that ‘given Bitcoin’s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability. Its use also gives rise to fiscal contingent liabilities. Due to all of these risks, Bitcoin should not be used as a legal tender.’ 

The IMF even urged El Salvador to ‘narrow their scope of the Bitcoin law and strengthen the regulation and supervision of the new payment ecosystem’. The IMF further discussed that the public debt of El Salvador could rise beyond 95% of its GDP by 2026 if the country doesn’t provide stronger regulations on the use of cryptocurrency. 

Having similar worries as the IMF, thousands of Salvadorans pushed back against the crypto initiatives on September 15 with thousands of citizens marching through the capital city and destroying one of the Chivo, El Salvador’s official crypto wallet kiosks.  

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