Crypto Dives on Day El Salvador Adopts It as Legal Tender
TOPLINE
The cryptocurrency market posted staggering losses Tuesday as a wave of selling pummeled the prices of nearly every single coin—unraveling the gains priced in by a retail trading mania ahead of El Salvador’s first day accepting bitcoin as legal tender.
KEY FACTS
The value of the world’s cryptocurrencies plunged to a low of about $1.9 trillion by 11:15 a.m. EDT on Tuesday, nearly 15% less than 24 hours prior and reflecting a loss of more than $410 billion, according to crypto-data website CoinMarketCap.
Heading up market value losses, the price of bitcoin dipped 15% to less than $43,000—the lowest price in nearly three weeks—before quickly paring some of the losses and settling at about $46,810 by 11:50 a.m. EDT, still 9% lower than one day earlier.
Meanwhile, ether, binance coin and Cardano’s ada plunged between 13% and 18% apiece, while Solana was the only token posting an increase in value, climbing 8% after a stunning run-up of nearly 36% over the past week.
In the middle of the flash crash, El Salvadoran President Nayib Bukele announced the country took advantage of crashing prices to purchase an additional 150 bitcoins, boosting its holdings to 550 total coins, worth about $25 million.
Sentiment started taking a hit early Tuesday as El Salvador’s wallet experienced technical difficulties within hours of its debut, forcing President Bukele to announce it would temporarily go offline.
Heightened trading volume then fueled speculation about institutions selling off large stakes and even triggered brief outages and trading delays on many of the world’s largest cryptocurrency exchanges, including Coinbase, Kraken and Gemini.
KEY BACKGROUND
The steep sell-off came less than one day after JPMorgan analysts warned in a note to clients that recently rallying altcoins—or cryptocurrency alternatives to bitcoin and ether—reflected “froth and retail investor mania,” as opposed to sustainable gains for the market. “The August rally in non-fungible tokens and the pickup in decentralized finance activity have helped not only ethereum but also alternative cryptocurrencies that facilitate or plan to facilitate smart contracts, such as Solana, Binance Coin and Cardano,” JPMorgan Managing Director Nikolaos Panigirtzoglou said Monday. “The previous phase of retail investors’ mania into cryptocurrency markets was between the beginning of January and mid-May… and retail investors are making cryptocurrency markets look frothy again.” After the bouts of retail-investing mania in January and May, crypto markets crashed about 13% and 50%, respectively.
TANGENT
El Salvador made history Tuesday by becoming the first sovereign government to use bitcoin as legal tender—clearing the way for residents to pay taxes and other debt with the cryptocurrency, and allowing hundreds of thousands of businesses nationwide to accept it as payment. In addition to its bitcoin buying spree, the Central American country has already marked the occasion with the rollout of hundreds of bitcoin ATMs and the debut of a new cryptocurrency wallet, Chivo, powered in part by California-based digital wallet firm BitGo. Ahead of the buzzy event, billionaire bitcoin bull Michael Saylor, the CEO of business analytics firm MicroStrategy, rallied around retail investors on Twitter and encouraged them to buy $30 worth of bitcoin to show support for El Salvador’s historic feat.
CRUCIAL QUOTE
“Bitcoin is lower on a ‘buy leading up to the big event, sell the fact’ reaction to El Salvador’s historic moment embracing cryptocurrency,” Ed Moya, a senior market analyst at Oanda, said in a Tuesday email, adding: “Bitcoin’s fundamentals remain intact, as prices iron out a new trading range between the $46,000 and $53,000 levels.”
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