El Salvador, a combination of factors including deepening economic difficulties and volatility risks,
warns of a warning for the Swiss central bank’s Bitcoin initiative.
Experts agree that “a cautious approach is needed for cryptocurrency policy.”
El Salvador’s historic experiment in adopting Bitcoin as its legal currency has come to an end after three years. In 2021, President Nayib Bukele captured the world’s attention by dreaming of a country’s economic leap forward through Bitcoin. But three years later, El Salvador’s Congress has effectively declared the experiment a failure by repealing the Bitcoin law.
Why Did El Salvador’s Bitcoin Experiment Fail?
On the 17th (local time), Swiss media outlet FineNews.com published an article titled ‘El Salvador’s Bitcoin Experiment Ends: Implications for Cryptocurrency Policy’, warning that Switzerland’s Bitcoin initiative should be approached with caution.
El Salvador’s Bitcoin experiment has been met with much controversy and concern from the beginning. The International Monetary Fund (IMF) warned of Bitcoin’s high volatility and potential risks, but President Bukele did not back down from his convictions. He pushed ahead with ambitious plans such as building Bitcoin City and issuing Bitcoin national bonds, and made excessive investments in Bitcoin.
However, El Salvador’s economic situation worsened. The national debt soared to 85% of GDP, and the economic growth rate fell to the lowest level in Central and South America. The Bitcoin price crash further deepened this crisis. In the end, the low acceptance rate of Bitcoin, with only 7.5% of El Salvadorans using Bitcoin, foreshadowed the failure of the experiment.
What El Salvador’s Experiment Means for Cryptocurrency Policy
El Salvador’s failed Bitcoin experiment has important implications for cryptocurrency policy.
First, it has proven that cryptocurrencies can pose significant risks to the national economy due to their high volatility.
Second, it has revealed that cryptocurrencies still have limited public acceptance and are limited in their use as legal tender.
Third, it has shown that cryptocurrency policies can have unexpected side effects if they are implemented without careful review and sufficient preparation.
Will Switzerland’s Bitcoin Initiative Follow El Salvador’s Path?
El Salvador’s failed experiment has sparked a debate about Switzerland’s Bitcoin initiative. The Swiss National Bank (SNB) is about to hold a referendum to invest a portion of its foreign exchange reserves in Bitcoin. However, the SNB opposes such a move, citing Bitcoin’s high volatility.
El Salvador’s case is an important lesson for Switzerland: Bitcoin investments can be very risky for the country’s economy and require careful consideration. SNB President Martin Schlegel has made his opposition to Bitcoin investments clear, warning that “many cryptocurrencies are purely speculative assets.”
Cryptocurrency policy requires a cautious approach
El Salvador’s Bitcoin experiment ended in failure, but it left an important lesson for cryptocurrency policy. Cryptocurrencies still have many challenges to overcome, such as high volatility and low acceptance. Governments of each country should carefully review and prepare sufficiently when promoting cryptocurrency policies.
El Salvador’s case shows the risks that excessive expectations and hasty investments in cryptocurrencies can cause. Going forward, cryptocurrency policies should be carefully promoted with a focus on stability and practicality.
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