On Wednesday, Bitcoin crashed by as much as 17% on the day El Salvador declared the cryptocurrency as legal tender. Prices of bitcoin slid from its opening bid of around $52,000 to around $46,260 in a span of a few hours.
El Salvador Declares Bitcoin Legal Tender
The bitcoin crash happened just as El Salvador declared the cryptocurrency as legal tender. The token’s biggest test of legitimacy suffered technical glitches due to the sheer number of subscribers in El Salvador.
As a result, President Nayib Bukele ordered the disconnection of the country’s official wallet until the glitches get fixed.
Beginning Wednesday, Bukele mandated that businesses accept cryptocurrencies as payments for goods and services. As a result, franchises such as Starbucks and Pizza Hut began accepting digital payments. The only exemptions are for other businesses without the technology to process cryptocurrency payments.
El Salvador Owns 550 Bitcoins
When the price fell due to the glitch, El Salvador ended up with 550 bitcoins. They bought more when the price started falling, according to Bukele.
Edward Moya, a senior market analyst at Oanda, wrote that many anticipated the crash. “Social media platforms were very cautious over the weekend that a plunge could occur following El Salvador’s big day,” he said. Some investors likely bought in anticipation of the nation implementing its Bitcoin law on September 7 and then moved to “sell the fact,” he added.
Since late July, Bitcoin has rebounded 75% of its value after enduring months of losses. However, the streak broke when its value starting going down beginning Tuesday.
Bitcoin brought down other currencies such as Ethereum and Dogecoin. Overall, the cryptocurrency market value lost around $300 billion during the last 24 hours, according to CoinGecko.
In addition, around $3.7 billion of cryptocurrency liquidations concluded. Exchanges closed many leveraged positions for failing to reach margin requirements.
Many Overbought Bitcoin
Billionaire Mike Novogratz, CEO of Galaxy Digital Holdings, said that crypto ran strong for the last eight weeks. As a result, crypto became overbought. Individual investor interest combined with institutional purchases.
However, Moya said that Bitcoin’s “fundamentals remain intact, as prices iron out a new trading range between the $46,000 and $53,000 levels.”
While many investors see El Salvador as the reason for the crypto crash, many other factors were also in play. One of those reasons is the prospect of reduced Federal Reserve stimulus.
Shutting off the Fed’s flood of money can affect speculative assets like digital tokens. “Could it also be that the liquidity beneficiaries — which could include crypto — may be sensing more normalized future policy setting from major central banks,” wrote Chris Weston, Pepperstone Financial Pty head of research.
SEC To Act Tougher On Crypto
In addition, the US Securities and Exchange Commission (SEC) Chairman Gary Gensler recently put cryptocurrency on notice. Gensler earlier labeled crypto as the “wild west of finance” and vowed to tame its market.
The SEC threatened to sue Coinbase Global if it allows customers to earn interest on their digital tokens. Coinbase Global is an American company that operates a cryptocurrency exchange platform. Many see the move by Gensler as an aggressive move to thwart industries they’re not comfortable dealing with.
Privately, ex-SEC officials expressed shock about the SEC’s decision. The agency typically waits for firms to start selling investments before announcing possible sanctions.
As a result, Coinbase’s share prices went down 3.2% to $258.20 in New York trading. “The SEC is being aggressive for the first time in a long time,” said James Cox, Duke University School of Law professor.
“The SEC has been putting a lot of muscle into cryptocurrency. It’s a big, fast-growing market and a fertile area for abuse,” he added.
Watch the Yahoo Finance video reporting Bitcoin crashes on Day One in El Salvador:
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