Bitcoin: View: Did Bitcoin’s El Salvador debut in crypto dud doom?

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Bitcoin had a rough Tuesday, collapsing nearly 10% on a day that should have been the cause of a festive rally. For the first time, Bitcoin has become legal tender in a sovereign country, El Salvador. But technical issues around the deployment and protests against crypto adoption marred the early days and lowered sympathy for other digital currencies.

Problems were the kind to arise with any mass deployment, especially by a government, and the immediate disruption can be minor and short-lived. Still, they point to a bigger unknown that may be much more important in shaping the evolution of Bitcoin: will people actually embrace it?

I remember the mid-90s when one of the biggest questions for investors on the internet was how many people would be willing to buy PCs, pay access fees, and learn about computers and browsers to enjoy the global web. It wasn’t until mass adoption (which of course happened) that businesses, governments, and other entities would build the fiber optic cables, servers, and other infrastructure that would make the internet fast, good. market and ubiquitous.

The same is true for cryptography. Some digital currencies can thrive in the background, with activity largely limited to small groups of specialized users and most people otherwise don’t know it. But much of the promise of crypto needs billions of people to fit it into their daily routines; this, in turn, will drive the hardware, software, and other investments that can make crypto fast, cheap, user-friendly, and, like the internet, ubiquitous.

Most crypto users to date fall into one of four categories: techies who like the idea; investors who like volatility, leverage and the unregulated nature of the market; the people who really need it (including residents of countries with failed currency and financial repression, people repatriating small amounts of money overseas, and ransomware crooks); and niche application specialists. One of the reasons there hasn’t been more widespread use is that no one has yet offered the killer app so attractive and powerful that almost everyone is embracing it. But another reason is the government’s disapproval and the sheer novelty of the idea.

El Salvador is a test case of how crypto can thrive with the active support and encouragement of the government. It is estimated that 10-20% of the Salvadoran population were already using crypto, as is typically the case in Latin American countries which rely heavily on remittances from expatriate workers and the government gives everyone $ 30 worth of Bitcoin. residents, which should encourage greater familiarity. If crypto cannot find rapid and enthusiastic adoption under these conditions, investors need to rethink its overall value proposition.

Success in El Salvador may invite imitation and could prompt multinational companies such as McDonalds Corp., for example, to put in place strong procedures for handling Bitcoin, including financial reporting, legal matters, custody, custody, security. cash management, investment, hedging and other functions. Once these standardized, the adoption of crypto would be much easier everywhere. But this only happens if there are a lot of customers who are actually using Bitcoin. If El Salvador remains based on the US dollar, with Bitcoin used only to buy dollars from the government, or if the government abandons the experiment in a few months, this opportunity will be lost.

These were one-day events in a small economy. The rollout had issues, but it wasn’t as much of a disaster as Healthcare.gov or Windows 8. And the drop in the price of Bitcoin isn’t an unusual event by historical standards for a digital currency that has had its share of even larger fluctuations.

As long as it’s a big story, and I think it is, it’s not because of the price movements now; it’s more about what’s happening over the next few months. A complete failure in El Salvador won’t doom digital currencies, but it will force a downgrade in the potential market share of many crypto ideas. A success in El Salvador could inspire upward revisions of the same magnitude.

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