1. Market Wrap: Bitcoin Plummets as El Salvador Buys the Dip
Bitcoin tumbled below $46K, triggering billions in long position liquidations.
Bitcoin was sharply lower on Tuesday, at one point declining nearly 19% from the $52,000 resistance level. The drop occurred after El Salvador bought 200 BTC on Monday ahead of the Central American nation’s Bitcoin Law going into effect. Under the law, bitcoin is now accepted as legal tender.
The sharp BTC decline triggered about $3 billion of trading position liquidations, with about $1 billion of selling around 10 a.m. ET. Bitcoin was trading around $47,000 at press time and is down 10% over the past 24 hours.
“It’s this volatility that has made many in El Salvador less than optimistic about the currency’s (BTC) adoption,” British financial services company Hargreaves Lansdown told. “Making transactions in the currency when the future price is so uncertain is risky,” the firm wrote.
Bitcoin (BTC): $46,896, -9.7%
Ether (ETH): $3,432, -13.1%
S&P 500: -0.3%
Gold: $1,818, -0.6%
10-year Treasury yield closed at 1.371%
El Salvador President Nayib Bukele tweeted on Tuesday that “150 new coins added,” and “buying the dip.”
Crypto proponents were reportedly buying $30 worth of bitcoin each to commemorate El Salvador’s move, known colloquially as “Bitcoin Day.” But it appeared that much of the good news had been priced in over the past month.
“The market’s been overextended for the last six weeks without any significant pullback,” Kevin Kang, founding principal of crypto hedge fund BKCoin Capital told.
When alternative cryptocurrencies rally, it is typically a sign of frothiness in the market, according to Kang. Bitcoin cash, litecoin, and EOS “typically make their move towards the end of the cycle,” he wrote.
2. Bitcoin Miner Profits Remain High Despite Surges in Mining Difficulty
Today’s 4.5% increase is the fourth consecutive upward difficulty adjustment. But it’s slowing.
Bitcoin’s mining difficulty, a metric that describes how difficult it is for miners to find new bitcoin blocks and earn rewards, has seen a small jump after its dramatic 13% surge two weeks ago.
At 00:05 UTC on Tuesday, the biweekly mining difficulty adjustment posted a 4.5% increase at block 699551, according to several mining sites. “Difficulty” refers to the relative measure of the amount of resources required to mine bitcoin. This measurement adjusts up or down depending on the amount of power consumed (or “hashrate” produced) by the network at a given time. Bitcoin’s protocol is set to adjust the difficulty level every 2,016 blocks, or roughly every two weeks, to ensure that new blocks are mined at a stable rate.
Mining bitcoin is becoming more costly as mining difficulty has been driven up by the massive amounts of existing computing resources devoted to mining, as well as more competition among miners to find new blocks. However, the largest cryptocurrency’s recent bull run has offset the increasing costs and keeps bitcoin mining highly profitable, according to miners and mining pool operators.
“Price is increasing faster than difficulty,” Daniel Frumkin, researcher at Prague-based bitcoin mining company Slush Pool, said. The good news is that the price is going up, which means mining revenue in fiat is holding steady even though revenue is decreasing in BTC terms, Frumkin added.
3. As El Salvador Enacts Bitcoin Law, Locals Remain Confused About Implementation
“One thing is what the president says, and another is what the law establishes.”
El Salvador’s Bitcoin Law takes effect today — and yet, many locals still don’t know how the cryptocurrency works or how they’ll be able to use it.
El Salvador’s Bitcoin Law stipulates that bitcoin must be accepted as a form of payment everywhere in the country. The nation’s legislature passed the bill shortly after President Nayib Bukele introduced it three months ago, but it’s unclear just how much effort the government has put into preparing its populace for the law to take effect.
Jessica Dominguez, the owner of a flower kiosk in San Salvador, said she has not yet had the time to learn about the matter.
“However, in due course I am willing to use bitcoin,” she said, adding that clients have already offered to pay with bitcoin.
Francisco, who asked that his full name not be cited, runs a laundromat in Sensuntepeque, a town located 83 kilometers from San Salvador, and said his business has not yet made arrangements to receive payments in bitcoin.
“In case you need to charge with bitcoin, we will do it with the wallet of a person who works in the establishment,” said Francisco, saying that his interpretation of the law means businesses are required to have the app, despite Bukele saying in mid-August it was not necessary to have one.
“One thing is what the president says, and another is what the law establishes,” he said.
A branch of the hardware store chain Disensa, located in San Salvador, told us that for the moment there is a total lack of knowledge about using bitcoin.
“Nobody knows how it will be acted upon. Neither the banks nor the suppliers know anything about it,” an employee said.
In the mass retail sector, the adoption process seems to be different. A branch of Almacenes Siman, a leading retail chain, told that bitcoin will be implemented as a payment method, although there is no definite starting date. One of the branches of Súper Selectos, a supermarket chain, also told that it will use and accept bitcoin.
Then there is the coastal area of El Salvador known as Bitcoin Beach, where there has been more of a willingness to use cryptocurrency among businesses and local residents.
An example of that trend is Olas Permanentes, a beach site in El Zonte that includes a hotel and restaurant managed by Carlos Ortiz Novoa.
“We have been using bitcoin for more than a year now and have had very good additional income through it,” Ortiz Novoa told us.
4. Flexa Hops Into El Salvador With Lightning Payments as Bitcoin Law Goes Live
Crypto payments firms are rushing into El Salvador as bitcoin becomes legal tender.
Cryptocurrency payments provider Flexa has launched Lightning Network payments with select partners and merchants in El Salvador as the country rolls out bitcoin as legal tender.
Announced Tuesday, Flexa, sometimes called the “Stripe of crypto,” has added super-fast Lightning payments using bitcoin, which will power crypto payments in El Salvador using wallets such as Strike and the government-run Chivo.
Following the June 9 passage of legislation, El Salvador has become the first country to make bitcoin a national currency, and as such the country becomes a testing ground for making volatile cryptocurrencies and the rails they run on usable for everyday payments.
And Flexa is not alone: Lightning firm OpenNode is powering a McDonald’s integration that briefly went viral on Tuesday.The Lightning Network is a technique of aggregating bitcoin payments and settling them instantly, with the net transaction later added to the Bitcoin blockchain.
5. Who Are the Main Opponents and Supporters of El Salvador’s Bitcoin Law?
President Nayib Bukele’s new law faces plenty of internal critics. Much of his support comes from outside the country.
El Salvador’s Bitcoin law establishing the world’s most popular cryptocurrency as legal tender faces a host of opposition within the country and beyond, while at the same time garnering plenty of support outside its borders.
One of the fiercest opponents of bitcoin is the country’s most important leftist party, FMLN, which in June filed a lawsuit before the Supreme Court of Justice arguing that the Bitcoin law was unconstitutional.
The creator and main proponent of the law is El Salvador’s president, Nayib Bukele, who founded and heads Nueva Ideas, a center-right political party.
FMLN parliamentary coordinator Jaime Guevara said the reason for filing the lawsuit was the public’s “resounding rejection” of the Bitcoin law, based on polls showing that 65% of Salvadorans surveyed were against the bill.
Indeed, from the time the Law passed through now, Bukele has had to face several populist demonstrations against it in the streets. The most recent one occurred on Tuesday on the day the law was enacted, with an estimated 1,000 people marching in San Salvador, according to Reuters, with protesters burning a tire and setting off fireworks in front of the Supreme Court building.
FMLN’s lawsuit went unanswered and on Sept. 5, the FMLN filed the lawsuit again, calling the Bitcoin law unconstitutional and lacking support.
Meanwhile, on Tuesday, El Salvador’s Chamber of Commerce and Industry asked its 200+ members — 90% of whom are small and medium-sized businesses — not to use bitcoin because of its volatility.
“There is not a single person I have talked to that tells me they are going to keep the bitcoins. Everyone is going to seek to convert them to dollars immediately and deposit them in a bank in the financial system,” said Jorge Hasbún, president of the Chamber, in a Twitter space organized by local newspaper elsalvador.com.
“The recommendation we are giving to the members is that, understanding their profile and their business model, they should not think about speculating with the money they need for payroll and to pay bills. They should transfer it to dollars because they pay salaries in dollars and that is the way it should be and should continue to be done,” Hasbún added.
At a regional level, Bukele’s plan has also faced opposition. Before the law was implemented, the Guatemala-based Central American Institute for Fiscal Studies (ICEFI) argued that it should be repealed.
Ricardo Castaneda, ICEFI’s coordinator for El Salvador and Honduras, said on Sept. 2 that adequate time should be taken to conduct technical studies on the implications of adopting the law.
“From the ICEFI, we consider that the best thing to do is to repeal it,” Castaneda said.
And at a global level, the International Monetary Fund (IMF) was one of the heavyweights that expressed its concerns with the Bitcoin law after it was passed, issuing a statement in June that “adoption of bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis.”
The IMF added that it was “following developments closely and will continue our consultation with authorities.”
The IMF has also warned against El Salvador’s plan more recently, potentially adding to bitcoin’s price volatility, and Bukele cheekily thanked the organization for providing an opportunity for El Salvador to buy more bitcoin at a discount on Tuesday.
“Thanks for the dip @IMFNews. We saved a million in printed paper,” Bukele tweeted after El Salvador bought 150 more bitcoins following the drop in its price.
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September 8, 2021