El Salvador is set for another troubled Bitcoin Day

By Raffaele Redi

Meanwhile a sell-off spiral hit national sovereign bonds and remittance cost concerns

Chivowallet app on Googleplay with a sad emoji                                 
Chivowallet crashing – Photo: President Nayib Bukele Twitter account
                                

Bitcoin Day three is set to be troubled for El Salvadorans amid struggles with the bitcoin ATMs and reports of faults with the notorious ‘chivowallet’ app. Local government and central banks were in the throes of a sell-off spiral of national sovereign bonds on 9 September while institutional investors were fearing big losses as lots of fees on transactions can be easily bypassed with bitcoins.

The sole remittance ‘industry’, which in 2018 made up 20.6% of El Salvador GDP (around $6bn), was reported to be at risk of a loss of millions of USD.

The remittance costs debate

The controversial debate on remittance costs seems to be open again as economists discuss transaction fees.

El Salvadoran President Nayib Bukele recently estimated that money service providers like Western Union and MoneyGram will lose $400m a year in commissions for remittances should the population adopt bitcoin at scale.

In an interview with CNBC, Mario Gomez Lozada, who was born and raised in El Salvador and runs a derivates exchange for crypto assets, revealed he thinks the figure will be closer to $1bn.

However, Steve Hanke, US economist from Johns Hopkins University, recently affirmed that the president “claims it’s cheaper to send remittances via bitcoin to El Salvador than by traditional alternatives. This is a big lie. To send $200 via Western Union or MoneyGram cost 0%-4%. To cash out bitcoin at an ATM in El Salvador costs 8% on average”.

The bond sell-off

While El Salvadorans were going through another Bitcoin Day, on the bond market a sell-off day hit the El Salvador benchmark.

El Salvador's 10-year Note price fell immediately after bitcoin’s adoption announcement. The benchmark fell from the $82 price level to around $76 roughly 24 hours after the first BitcoinDay, despite a 9.8% yield.

El Salvador has almost $8bn in sovereign bonds on the secondary market, rated on average B- by rating agencies such as Fitch, meaning their value could significantly decrease in a few months.

Further reading: Cardano founder predicts other nations will copy El Salvador

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