Bitcoin had a tough Tuesday, plummeting nearly 10 percent in one day that should have been the occasion for a celebratory rally. For the first time, Bitcoin became legal tender in a sovereign nation, El Salvador. But technical glitches surrounding the introduction and demonstrations against the introduction of crypto spoiled the debut and affected other digital currencies.
The problems were the kind that can arise with any mass introduction – especially by a government – and the immediate disruptions can prove to be minor and short-lived. However, they point to a larger unknown that could be far more significant to the evolution of Bitcoin: will people actually embrace it?
I remember in the mid-1990s when one of the biggest questions for internet investors was how many people would be willing to buy PCs, pay access fees, and learn about computers and browsers in order to use the World Wide Web. Only with mass adoption (which it did, of course) would corporations, governments, and other entities build fiber optic cables, servers, and other infrastructures that would make the Internet fast, cheap, and ubiquitous.
The same goes for crypto. Some digital currencies can thrive in the background, with activity largely limited to small groups of specialized users and most people otherwise unaware of it. But much of the promise of crypto takes billions of people to incorporate into their daily routines; This, in turn, will fuel the hardware, software, and other investments that can make crypto fast, cheap, easy to use, and, like the internet, ubiquitous.
Most crypto users to this day fall into one of four categories: tech enthusiasts who love the idea; Investors who love the volatility, leverage, and unregulated nature of the market; People who really need it (including residents of countries with failed currencies and financial repression, people repatriating small amounts of money overseas, and ransomware crooks); and specialists for niche applications. One reason for the lack of distribution is that the “killer app” is not yet so attractive and powerful that it is accepted by almost everyone. But another reason is the government’s rejection and the sheer novelty of the idea.
El Salvador is a test case of how crypto can thrive with active government support and encouragement. An estimated 10 to 20 percent of El Salvador’s population already used crypto – as is typical of Latin American countries that rely heavily on remittances from foreign workers – and the government is giving all residents $ 30 in Bitcoin, which should encourage more familiarity . If crypto cannot find quick and enthusiastic adoption under these conditions, investors need to rethink its overall value proposition.
Success in El Salvador may be inspiring and could encourage multinational corporations like McDonald’s Corp. Induce the establishment of robust procedures for dealing with Bitcoin, including financial reporting, legal issues, custody, cash management, investments, hedging, and other functions. Once these were standardized, it would make the adoption of crypto anywhere a lot easier. But that only happens if many customers actually use Bitcoin. If El Salvador continues to be based on US dollars and Bitcoin is only used to buy dollars from the government, or if the government stops the experiment in a few months, that opportunity will be wasted.
This was a daily occurrence in a small tavern. The rollout struggled, but it wasn’t as much of a disaster as Healthcare.gov or Windows 8. And the decline in the price of Bitcoin is not an uncommon event in historical terms for a digital currency that has had its share of even greater fluctuations.
As far as this is a big story, and I don’t think it’s price moves now; it’s more about what’s going to happen in the next few months. A catastrophic failure in El Salvador won’t ruin digital currencies, but it will force a downward revision of the potential market share of many crypto ideas. A success in El Salvador could lead to equally large upward corrections.