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Cryptocurrencies plunge after El Salvador adopts Bitcoin as legal tender

Bitcoin falls 18%, Ethereum, ADA, Doge lose over 10% in a day

SAMAA | - Posted: Sep 9, 2021 | Last Updated: 1 month ago
SAMAA |
Posted: Sep 9, 2021 | Last Updated: 1 month ago

Photo: AFP

Bitcoin as well as other major crypto assets including Ethereum, Cardano, Dogecoin and Binance Coin plunged on Tuesday after El Salvador became the first country to adopt Bitcoin as a legal tender.

All the major currencies fell more than 10%, wiping out $410 billion from the crypto market in 24 hours, coinciding with Bitcoin’s adoption as a legal tender by El Salvador.

The first and largest cryptocurrency, Bitcoin fell 18% to $43,000 per coin, its biggest drop since mid-June. It was trading at around $52,700 on September 7. Others followed suit with Ethereum, the second-largest crypto asset, losing 15% of its value, and Cardano and Dogecoin losing more than 10% each.

“The fall comes despite some proponents on Reddit attempting to organize a movement of Bitcoin purchases to support El Salvador’s Bitcoin adoption,”. Fortune.com reported, attributing the retreat to the technical glitches El Salvador’s government reported with its official crypto wallet, Chivo, which it was trying to fix by Tuesday afternoon.

Following Tuesday’s price dip, El Salvador’s President Nayib Bukele announced the country purchased an additional 150 Bitcoins, taking its total holdings to 550 coins, the publication said.

Just before the latest crash, people on Twitter and Reddit tried to pump Bitcoin price in a coordinated effort. A movement on these platforms asked followed to buy $30 of the digital currency on September 7 in honor of El Salvador, which became the first country to adopt it as legal tender. However, it wasn’t the first time such movement broke the internet.

“The promotion of Bitcoin parallels some of the other coordinated price pumps arranged recently on social media,” Fortune said, referring to the pump and dump of meme stock GameStop, a video game retailer based out of the United States, and Dogecoin, a cryptocurrency that came to existence as a joke.

This coordinated buying and selling of financial assets has worried financial regulators across the world. Britain’s watchdog, the Financial Conduct Authority, European Central Bank and the US Treasury have all warned people not to invest in these assets or they would lose all their money.

What is cryptocurrency?

Cryptocurrency is digital money in form of computer codes. There is no physical money or coins involved. A person by the name of Satoshi Nakamoto launched it in 2008 without revealing his identity. Digital coins have become quite popular in the last decade or so as evident from the phenomenal success of the world’s first cryptocurrency: Bitcoin.

People who support the concept have called it “breakthrough technology” that will change the way financial systems work. A cryptocurrency is different from conventional digital currencies because it bypasses intermediaries, usually a bank, and enables instant peer-to-peer payments. Nakamoto launched it in the wake of a financial crisis to give people control over their money and exclude banks or governments from the process. 

It works on blockchain technology—a decentralised public ledger. That is, no central bank or government can place any limit on its production or transfers. In a cryptocurrency, a vast network of computers validates all transactions by solving a complex mathematical problem, making it impossible to counterfeit a coin. This solves the problem of double-spending. These computers are called miners and whoever validates the transaction first gets a reward. This new currency is added to the system without creating inflation.

Since Bitcoin’s launch, more than 10,000 cryptocurrencies—together known as AltCoins—have been introduced and become a new asset class for investors. The combined market cap of all cryptocurrencies is around $2 trillion.

The increasing popularity of cryptocurrencies has, however, become a concern for legacy banks and central banks across the world because they take control away from them and give it to the people. This money is not regulated and given the anonymity around, it can be used for tax evasion, money laundering, other criminal activities. To counter this, governments across the world are exploring different options including regulating cryptocurrencies or even launching their own digital currencies.

Another risk associated with these currencies is their volatile and speculative nature. Pick any cryptocurrency and you can spot its volatile price history as they move up or down very fast even on speculations. Academics and financial regulators warn investors not to invest in these volatile assets or they can lose all of their money.

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