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The use of Bitcoin (BTC-USD) as a medium of exchange in El Salvador, the first country ever Adopting the most popular cryptocurrency as legal tender appears to be off to a rough start, according to a recent study due to a general lack of trust in Bitcoin and the government’s BTC wallet called Chivo opinion poll from the US National Bureau of Economic Research.
The survey data was based on face-to-face interviews with 1,800 Salvadoran households.
There has been a growing debate about Bitcoin’s (BTC-USD) potential to replace the US dollar as the world’s reserve currency. In a free market, a currency is defined as a form of money that serves as a medium of exchange, a unit of account, and a store of value. Some argue that the US dollar and other fiat currencies in general are doing a poor job of protecting consumer spending power, while others argue the opposite. And as consumer price inflation hit a 40-year high, this debate became even more heated, especially as a number of companies have adopted crypto for a variety of use cases over the past two years. While early Bitcoin fans touted the tokens’ decentralized characteristics, the general public may not trust it unless facilitated by a single regulatory regime.
Bitcoin adoption in El Salvador falters:
In some context, the Chivo wallet quickly lost popularity in El Salvador after its launch in September 2021. The NBER survey found that only 20% of respondents in the country used Chivo after downloading it. 40% of all downloads happened in September last year and “virtually no downloads happened in 2022”. It appears that given the $30 bonus offered by the government, people were incentivized to download Chivo, hence the saturated influx of downloads early in Chivo’s launch, NBER explained.
“The number one reason for not downloading the app, assuming they know about it, is that users prefer to use cash, which was followed by trust issues – respondents didn’t trust the system or Bitcoin itself,” the study reads.
Note that the greenback became the official currency in El Salvador in 2001.
Bitcoin vs. US Dollar: The survey also found that only 5% of company sales were made in Bitcoin (BTC-USD), while most transactions were converted into dollars. Perhaps El Salvador’s downbeat bitcoin experiment (BTC-USD) can serve as a proxy for other emerging markets looking to use crypto as a medium of exchange. Earlier in the week ended April 29, Central African Republic – another emerging market – became the second nation in the world to adopt Bitcoin as legal tender. A handful of developed nations like the US are reluctant to adopt volatile cryptos, instead looking for ways to implement stablecoins or central bank digital currencies in a way that doesn’t compromise financial stability. US Treasury Secretary Janet Yellen called for a crypto regulatory framework to reduce risk and fraud earlier in April.
SA contributor Rothko Research said recently that Bitcoin (BTC-USD) upside potential remains limited as a number of central banks turn to tighter monetary policies to tame inflationary pressures. Rothko considers BTC a hold.
Meanwhile, bitcoin (BTC-USD) changed hands and slipped by at around $38.5k during Friday afternoon’s trading firmly below its key $40k level 2.1% in the last five sessions almost -20% M/M and -28% y/y
Earlier (April 23) Morgan Stanley said that the use of Bitcoin as a currency may just be starting.
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