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September 17, 2021

Bitcoin is all about publicity – unless you live in El Salvador

By Robert Scammell

Protestors in El Salvador set Bitcoin ATMs on fire as the backlash against the government’s decision to accept the cryptocurrency as legal tender escalated. The violent demonstrations capped off another turbulent week for the cryptocurrency market in which some exchanges operating in South Korea will be forced to temporarily suspend trading and the CEO of AMC said the US cinema chain would accept cryptocurrencies for ticket purchases.

El Salvador became the first country to accept bitcoin as legal tender on 7 September in a move aimed at reducing remittance fees from Salvadorans working abroad sending money home.

The project got off to a bumpy start, with the government-backed Chivo digital wallet immediately experiencing technical difficulties.

This did not help to calm the mood in El Salvador, where more than 1,000 people gathered last week outside the country’s supreme court to protest the nation’s new currency and the president who spearheaded the project, Nayib Bukele.

Those protests spilled over into this week and merged with anti-government marches, with thousands of demonstrators holding up signs reading “we were defrauded by bitcoin” and “no to dictatorship”.

In a further blow to the project, El Salvador’s Court of Accounts confirmed it will investigate the authorisation process for the purchase of 400 bitcoins and the use of taxpayer money to fund the construction of cryptocurrency ATMs.

The watchdog can present the findings of its audit to the Attorney General’s Office and ask for criminal proceedings to be brought forward, should it discover any foul play. It can also impose administrative and asset sanctions.

While retailers such as Starbucks and McDonald’s have put up signs in El Salvador to advertise that they now accept bitcoin, polling suggests consumers in the country are sceptical.

One poll of 1,281 people found that 67.9% of Salvadorans disagree or strongly disagree with the use of bitcoin as legal tender.

“Make no mistake, the decision to introduce Bitcoin as legal tender in El Salvador was a populistic move by its young charismatic leader,” said Nicklas Nilsson, senior analyst at GlobalData. “The fact that the population is against the initiative is also not surprising  as society in general is sceptical towards change and even more so towards change brought on by emerging technologies, be it AI, automation, or crypto.”

Critics point to bitcoin’s volatility as an obstacle to it becoming a mainstream currency. This was demonstrated by the fall in bitcoin’s price in the aftermath of El Salvador accepting it as legal tender. However, the price has since recovered.

Observers are keeping a close eye on El Salvador’s bitcoin experiment, with some viewing it as a bellwether for mainstream adoption of the digital currency.

However, there are factors that could hinder its adoption compared to if the project was attempted in other countries. For example, internet coverage in El Salvador is patchy, with internet penetration in El Salvador only stood at 50.5%, according to Datareportal.

But a recent GlobalData thematic research report suggests that El Salvador is committed to bridging the technological divide in the next decade.

“It’s difficult to say whether El Salvador’s crypto project is doomed to failure or not,” said Nilsson.

He said that while it’s likely the project will “peter out” due to the backlash, there’s a “small possibility that the initiative turns out to be a stroke of genius”.

If successful, it could “spread throughout the region and attract a new wave of foreign investments”, he added.

South Korea clamps down on crypto, AMC says more please

On Friday the cryptocurrency market received another blow when more than 60 exchanges in South Korea were told they must suspend trading if they have not registered with the country’s Financial Intelligence Unit by 24 September. As part of the regulatory tightening, exchanges must also partner with banks to tie accounts with real people.

Exchanges that do not meet these requirements will have to notify customers of a full or partial suspension of trading by midnight on Friday.

But in a boost to the mainstream adoption of cryptocurrency the CEO of AMC, Adam Aron, said this week that cinemas would accept ether, bitcoin cash and litecoin alongside bitcoin for ticket purchases.

“Cryptocurrency enthusiasts: you likely know @AMCTheatres has announced we will accept Bitcoin for online ticket and concession payments by year-end 2021. I can confirm today that when we do so, we also expect that we similarly will accept Ethereum, Litecoin and Bitcoin Cash,” Aron said in a tweet on Wednesday.

It’s an expansion of an announcement in August when AMC said it would start accepting bitcoin by the end of the year.

While more and more retailers are accepting cryptocurrency payments alongside fiat currencies there has been mixed success.

Earlier this year Tesla started accepting bitcoin for purchases of its electric cars, only for its CEO and cryptocurrency enthusiast Elon Musk to pull the capability months later, citing environmental concerns. There was little evidence that any consumers opted to use bitcoin to purchase a Tesla vehicle while the option was available.

Moves by retailers to accept cryptocurrency have at times been more effective at generating publicity than real-world use cases.

Nilsson said that AMC’s cryptocurrency announcement was “definitely a PR move” and a way to “ensure the spotlight stays on the previously struggling company”.

The cinema chain saw revenues decimated by Covid-19-induced lockdowns, only to see its share price surge as part of the Reddit-driven retail trading frenzy started by investments in Gamestop.

Nilsson added that while the volatility of cryptocurrencies makes it hard for AMC to settle on a conversion rate, there is evidence of some demand for the option to use it for payments among consumers.

Not all cryptocurrency partners have been what they seem, either. Earlier this week, a press release claiming US grocery giant Walmart would accept litecoin turned out to be a hoax. That didn’t stop mainstream media outlets from reporting the news, causing litecoin’s price to surge before falling back to Earth with a thud.

Amid the turbulence of the week, the price of bitcoin has uncharacteristically remained relatively flat.