El Salvador Purchases an Additional 80 BTC
[TL; DR]
El Salvador purchased an additional 80 BTC in June.
By making bitcoin a legal tender, El Salvador aims to increase remittances back home.
El Salvador now owns an estimated total of 2 381 BTC.
If the price of the BTC increases El Salvador will make a profit since it purchased them during a dip.
keywords: bitcoin, El Salvador, buying the dip, investment, President Nayib Bukele, legal tender
El Salvador, the first country to adopt Bitcon as a legal tender, has increased its BTC holding. It purchased 80 BTC at a price of $19 000 each, way below its all time high of about $76 000. Despite the recent fall in the prices of almost all cryptocurrencies and BTC in particular, El Salvador has maintained its confidence in the coin.
On 30 June, the president of the South American country, President Nayib Bukele, announced the recent acquisition of additional BTC. Posting on Twitter, President Bukele said, “El Salvador bought 80 #BTC today at $19,000 each! #bitcoin is the future! Thank you for selling cheap.” To support the accuracy of his announcement, Bukele included a screenshot showing a successful BTC transaction.
Salvadoran President Nayib Bukele is one of the top public figures to show his unwavering support for bitcoin. According to an analyst, the country bought the 80 BTC at a total figure of about $1.5 million. Soon after El Savador purchased 80 bitcoin, its price rose above $20 000.
Due to the depressed price of the BTC, El Salvador is holding it at a loss. However, the Finance Minister said that this loss does not affect the performance of the economy. After the recent purchase those closely following El Salvador’s BTC record believe that the country now has a total of 2,381 bitcoin. This is because in May El Salvador purchased 500 BTC.
At the time of writing this article Coinbase estimates that the current value of El Salvador’s BTC holding is about $44 million. However, Coinbase estimates that El Salvador purchased its BTC holding at an estimated total of $103.9 million.
The reasons for El Salvador’s adoption of BTC as a legal tender
Apart from President Nayib Bukele’s trust in bitcoin there are other considerations which the country made before making BTC a legal tender.
The first reason for adopting bitcoin as a legal tender was to enable many Salvadorians to invest in it. This is because most of them have no opportunities to invest in traditional financial services. Commenting on this, President Nayib Bukele said, “"We must break with the paradigms of the past. El Salvador has the right to advance toward the first world." However, his statement was translated from Spanish.
According to the president, using bitcoin helps to increase transmittance of funds from the rest of the world. Many Salvadorans living in other countries send billions of dollars to the country every year. Therefore, the process of sending the funds should be smooth and friendly. As a result, sending funds through bitcoin is one of the best alternatives for the Salvadorans. Also, sending bitcoin is faster and cheaper than the United States dollar, which El Salvdor also uses.
To support smooth transactions in BTC, the country developed its own wallet called the Chivo. In the first days, the country discounted the citizens who sent BTC to the country using this wallet.
Buying the dip
We have seen that El Salvador purchased bitcoin during a dip. Buying the dip has both advantages and disadvantages.
Advantages of buying the dip
Buying the dip is a trading strategy where investors purchase an asset such as bitcoin when the price is lower than its average value. This is the same strategy which El Savador has adopted when purchasing the 80 BTC. Considering that the price of BTC at that time was about $19 000 it sounds like a wise decision to buy them. In contrast, within the last few months BTC was trading in a range of $30 000 to $40 000. Therefore, El Salvador hopes that the price of BTC will rise soon and make a profit in the process. Even if the BTC bounds back to $30 000 El Salvador would have made a good profit.
Buying the dip means purchasing the BTC at a lower price than its average. Therefore the buyer uses less funds to buy them than otherwise. This is in line with the key trading principle: “buy low and sell high.” Probably, this is what El Salvador implemented, hoping that the price of BTC will rise soon. Still, the country can hold the cryptocurrency for long and wait to cash in when the price rises.
Buying the dip always has a psychological impact on the buyer. The investor is satisfied that he/she has purchased the price at a lower than the average value.
Main disadvantage of buying the dip
Although the investor who buys the dip expects a reversal of the bearish trend, that can turn out to be different. The price of BTC may continue on a downward trend for a long time. This is because the crypto market is never predictable.
Conclusion
El Salvador has shown confidence in bitcoin by purchasing it when the price was very low and at the time the market was in a downtrend. Buying a cryptocurrency when its price is below its average price is called buying the dip. Also, El Salvador became the first country to make bitcoin a legal tender. The Salvadoran president Nayib Bukele believes that adopting bitcoin will help the country to increase foreign remittances as well as cutting on the cost of sending funds back home.
Author: Mashell C., Gate.io Researcher
This article represents only the views of the researcher and does not constitute any investment suggestions.
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