Why El Salvador’s Bitcoin Experiment May End in Disaster
To understand bitcoin’s risk as a currency, let’s look at how it compares against 22 other global currencies
The small Central American country of El Salvador (population 6.5 million) recently became the first country to make bitcoin legal tender. The country now holds 550 bitcoins, currently worth around $25 million. Is this small country — and the world for that matter — ready for bitcoin as an actual medium of exchange? How volatile is bitcoin compared with other currency fluctuations relative to the U.S. dollar? As a follow-up to my earlier blog that described the risk and return of bitcoin, I compare the volatility of bitcoin price changes with that of 22 currencies based on daily data back to 1999, when the Euro was created. Through the lens of five charts, I tell the story of currency fluctuations and how the dollar has performed in the past 22 years, and I compare currency reserves as well — data and charts are available in a downloadable spreadsheet. Bitcoin is about four times riskier than the Brazilian real and about as risky as the Venezuelan bolivar, a country experiencing hyperinflation. El Salvador is embarking on a risky course that may not end well.
