Use of Bitcoin (BTC-USD) as a medium of exchange in El Salvador, the very first country to adopt the most popular cryptocurrency as legal tender, appears to have gotten off to a rocky start due to a general lack of trust in bitcoin and the government’s BTC wallet dubbed Chivo, according to a recent survey by 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 growing debate over the potential of bitcoin (BTC-USD) 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 acts as a medium of exchange, a unit of account, and a store of value. Some argue that the US dollar and other fiat currencies generally do poorly in protecting consumer purchasing power, while others suggest otherwise. And as consumer price inflation has hit a 40-year high, this debate has become even more heated, especially as so many businesses over the past couple of years have embraced crypto for a variety of use cases. While early bitcoin fans touted the tokens’ decentralized properties, the populace at large may not trust it unless facilitated by a unique regulatory regime.
Bitcoin adoption wavers in El Salvador:
In some context, El Salvador’s Chivo wallet quickly lost popularity after it was rolled out in September 2021. The NBER survey found that only 20% of respondents in the country used Chivo after downloading it. 40% of all downloads took place in September last year and “virtually no downloads took place in 2022”. It seems that people were enticed to download Chivo given the $30 bonus offered by the government, hence the saturated influx of downloads at the start of Chivo’s launch, the NBER explained.
“The most important reason for not downloading the app, if aware of it, is that users prefer to use cash, which was followed by trust issues – respondents did not trust in the system or bitcoin itself,” the study said.
Note that in 2001, the greenback became the official currency of El Salvador.
Bitcoin against US dollar: The survey also indicated that only 5% of company sales were in bitcoin (BTC-USD), while most transactions were converted into dollars. Perhaps the pessimistic bitcoin experience of El Salvador (BTC-USD) can serve as a proxy for other emerging countries looking to use crypto as a medium of exchange. Earlier in the week ending April 29, the Central African Republic – another emerging market – became the second nation in the world to adopt bitcoin as legal tender. A handful of developed countries such as the United States are hesitant to tackle volatile cryptos, but are instead exploring avenues to implement stablecoins or central bank digital currencies in a way that does not affect the financial stability. In early April, US Treasury Secretary Janet Yellen called for a crypto regulatory framework in an effort to reduce risk and fraud.
SA contributor Rothko Research recently said that bitcoin’s (BTC-USD) upside potential remains limited as a slew of central banks turn to tighter monetary policy in an effort to rein in inflationary pressures. Rothko sees BTC as a suspension.
Meanwhile, bitcoin (BTC-USD) in Friday afternoon trading was changing hands firmly below its key $40,000 level to around $38.5,000, slipping from 2.1% over the past five sessions, nearly -20% M/M and -28% Y/Y.
Previously (April 23), Morgan Stanley said that the use of bitcoin as a currency may be just beginning.