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Bitcoin’s (BTC-USD) use as a medium of exchange in El Salvador, the first-ever country to adopt the most popular cryptocurrency as legal tender, appears to be off to a rough start due to an overall lack of trust in bitcoin and the government’s BTC wallet dubbed Chivo, according to a recent survey by the U.S. National Bureau of Economic Research.
The survey data was based on face-to-face interviews with 1,800 Salvadorian households.
There has been a growing debate on the potential for bitcoin (BTC-USD) to replace the U.S. dollar as the world reserve currency. In a free market, a currency is defined as a form of money that acts as a medium of exchange, unit of account and store of value. Some argue that the U.S. dollar and other fiat currencies generally do poor jobs of protecting consumers’ purchasing power, while others suggest the opposite. And as consumer price inflation reached a 40-year high, that debate has become even more heated, especially as a slew of businesses over the past two years have taken on crypto for a variety of use cases. While early bitcoin fans touted the tokens’ decentralized properties, the population at large may not trust it unless it’s being facilitated under a single regulatory regime.
Bitcoin adoption falters in El Salvador:
For some context, El Salvador’s Chivo wallet quickly lost popularity after its rollout in September 2021. NBER’s survey found that just 20% of respondents in the nation used Chivo after downloading it. 40% of all downloads occurred in September of last year and “virtually no downloads have taken place in 2022.” It seems that people were incentivized to download Chivo given the $30 bonus offered by the government, hence the saturated influx of downloads at the onset of the Chivo launch, the NBER explained.
“The most important reason not to download the app, conditional on knowing about it, is that users prefer to use cash, which was followed by trust issues — respondents did not trust the system or bitcoin itself,” the study said.
Note that in 2001, the greenback became the official currency in El Salvador.
Bitcoin vs. U.S. dollar: The survey also indicated that only 5% of company sales were in bitcoin (BTC-USD), while most transactions were converted to dollars. Perhaps El Salvador’s downbeat bitcoin (BTC-USD) experiment can act as a proxy for other emerging market countries looking to use the crypto as a medium of exchange. Earlier in the week ended April 29, the Central African Republic — another emerging market — became the second nation in the world to adopt bitcoin as legal tender. A handful of developed nations such as the U.S. are shying away from taking on volatile cryptos, but instead are exploring paths to implement stablecoins or central bank digital currencies in a way that doesn’t impact financial stability. U.S. Treasury Secretary Janet Yellen in the beginning of April had called for a crypto regulatory framework in an effort to reduce risks and fraud.
SA contributor Rothko Research recently said that bitcoin’s (BTC-USD) upside potential remains limited as a raft of central banks pivot to tighter monetary policy in an effort to tame inflationary pressures. Rothko views BTC as a Hold.
In the meantime, bitcoin (BTC-USD) in Friday afternoon trading was changing hands firmly below its key $40K level at around $38.5K, sliding by 2.1% in the past five sessions, nearly -20% M/M and -28% Y/Y.
Previously, (April 23) Morgan Stanley said that bitcoin’s use as a currency may just be getting started.