Comment from Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown:
“Attempts to pump up the price of Bitcoin to celebrate its adoption as legal tender in El Salvador have fallen flat with the cryptocurrency deflating in value slightly over the past 24 hours.
Speculation had swirled that Bitcoin would see another price surge, especially if fans followed the calls put out on social media to buy $30 worth to mark the Bitcoin law coming into effect. But it’s fallen back by around 1.4% over the past 24 hours hovering just over $51,000.
The reticence to follow the herd on this occasion offers much needed crumbs of comfort, given so much of Bitcoin’s rise is down to speculation on future price rises and the FOMO effect, rather than necessarily its underlying use case. This concern has been echoed by Charles Randell, the chair of Britain’s financial watchdog, the FCA, who has highlighted the dangers of high-profile celebrity influencers promoting risky cryptoassets.
Bitcoin is still up by 65% since July 20th when it began its most recent climb, after losing more than half its value, after reaching a high of over $63,000 in April.
It’s this volatility that has made many in El Salvador less than optimistic about the currency’s adoption. It is a huge gamble for the country’s payment system given that making transactions in the currency when the future price is so uncertain is risky.
There will be concern that by becoming known as a Bitcoin haven, the country, which has already faced serious issues with corruption, could attract the wrong kind of investment from criminal groups seeking anonymity.
For investors it’s important to bear in mind that the payments world is in a state of flux, and the rules of the future game have not yet been drawn up.
Although it’s clear that digital currencies in some form will find a place at the table in the financial system, given the interest by large companies and governments, it’s very unclear which of the thousands of coins and tokens will retain their value in the future and what role they will play.
Given speculating in crypto assets remains such a high-risk strategy, traders should only commit money they can afford to lose.”