The price of bitcoin fell Tuesday after breaking through $52,000 late Monday, reaching its highest level since May.
The price action comes on the day El Salvador is set to adopt the largest cryptocurrency by market cap as legal tender, becoming the first country to do so. Bitcoin dropped as much as 16% on Tuesday morning. It was last down about 9.5% and trading at $46,892.04, according to Coin Metrics. Ether fell 12% to $3,441.21.
Crypto adjacent stocks MicroStrategy and Coinbase also lost about 9% and 4%, respectively. Coinbase users were experiencing delayed or canceled transactions at “elevated rates” in the morning, the company said in an update on Twitter, but those issues were resolved by the afternoon. Major crypto exchanges Kraken and Gemini were also investigating delays and performance issues.
Early Tuesday El Salvador temporarily disabled Chivo, its government-run bitcoin wallet, to increase the capacity of the servers, which were hindering new users from installing it, President Nayib Bukele announced in a tweet at about 7:00 a.m. EST.
“Any data they try to enter at this time will give them an error,” he said. “This is a relatively straightforward problem, but it cannot be fixed with the system connected.”
The market action is unsurprising, according to Leah Wald, CEO at Valkyrie Investments, who said the news was largely priced into the market “a while ago.”
“When this move was first announced, it didn’t have nearly as big of an impact on price as some may have expected it might, possibly because El Salvador’s population is less than New York City’s, but also because the announcement was light on details and people were on the fence about how this was going to be implemented,” she told CNBC, noting that much of El Salvador lives in poverty and doesn’t have the internet or smartphone access required to participate in the bitcoin network. “Transaction fees, processing times, and other hurdles also make this feel more like a beta test rather than a solution to many of the problems plaguing the country’s poor,” Wald added.
As part of the new law, businesses will be required to accept bitcoin for goods and services, though merchants who aren’t technologically able to accept bitcoin will be exempt. The government has installed 200 bitcoin ATMs around El Salvador. It also bought 400 bitcoins worth about $20 million and is preloading Chivo wallets with $30 worth of bitcoin for Salvadorans who register.
Some traders are saying on social media that they will be buying $30 worth of bitcoin in their local fiat currencies to commemorate and support El Salvador’s new law, at 3:00 p.m. ET. But bitcoin prices were sliding into the afternoon anyway.
“What is most worth looking out for is whether or not neighboring countries in Latin America, or those elsewhere around the world, begin to adopt bitcoin as their national currency as well,” Wald said. “Should this occur, that is when we could see a parabolic move higher, as the momentum gained from many millions more people having instant access to crypto should result in more adoption, more HODLing, and higher prices.” HODLing is crypto community slang for the buy-and-hold investment strategy.
Bitcoin advocates have long held there’s a strong case for Latin American markets using the cryptocurrency as a medium of exchange, for remittances and even for central banks that experience high currency depreciation.
On Monday Panamanian politician Gabriel Silva introduced the “Crypto Law,” which “seeks to make Panama a country compatible with the blockchain, crypto assets and the internet,” he said on Twitter. “This has the potential to create thousands of jobs, attract investment and make the government transparent,” he added.