El Salvador Airdrops Bitcoin to Citizens as China Clampdown Continues and Microstrategy Shopping Spree Escalates

Increased restrictions from the People’s Bank of China and inflation concerns caused Bitcoin to briefly withdraw below the symbolic $30,000 marker last week before bouncing back. Elsewhere last week, MicroStrategy capitalized on market sentiment with monumental Bitcoin investment, and El Salvador outlined its plan for cryptocurrency adoption. 

  • El Salvador to airdrop BTC to citizens – Athena ATMs
  • China imposes further restrictions on cryptocurrency transactions
  • MicroStrategy purchases $489 million worth of Bitcoin
  • Inflation indicator posts highest figure in three-decades
  • Big-ticket reports to watch out for this week

El Salvador to airdrop Bitcoin to citizens

After passing a bill to make Bitcoin legal tender in early June, El Salvador announced last week that it would be providing every adult in the country with $30 worth of cryptocurrency. Every adult will receive $30 worth of Bitcoin if they download and register with the government’s new cryptocurrency mobile application. The move should encourage Bitcoin adoption and allow citizens to become more familiar with the technology.

During a conference, last Thursday, the President of El Salvador Nayib Bukele stated that the official ‘Bitcoin law’ would be passed on September 7th. He also reassured citizens that the use of Bitcoin was not mandatory and that US dollars would still be used as a legal tender also. The adoption of Bitcoin will not be like the adoption of US dollars where all bank accounts in the country were converted.

Later the same week, Athena, a US manufacturer of Bitcoin ATMs announced that it would be supplying El Salvador with 1500 machines. This will be a significant increase from the 2 that currently reside in the country. Athena also stated that it would be opening an office in El Salvador to maintain and manage the machines. 

The director for Latin America, Matias Goldenhorn commented on the project during an interview with Reuters. President Nayib Bukele has “presented us with a tough challenge of 1500 ATMs, we will go for that. But in phases. We are a private company and we want to ensure that our development in the country is sustainable. Initially, we are going to bring dozens of machines, (we’ll) test what the business model is like in El Salvador, which will probably be different than in the United States”.  

China crackdown briefly pushes Bitcoin below $30k

In May, China released statements describing that investigations were to take place into Bitcoin mining, which was quickly followed by a ban on cryptocurrency-related services. Since then, restrictions imposed in the country have been bold and swift. 

Incremental bans on Bitcoin mining have spread from province to province over recent weeks, which has caused the majority of miners to either cease operations or attempt to move abroad. As nearly half of all of Bitcoin’s mining efforts were positioned in China, this has resulted in a significant decrease in Bitcoin’s hash rate (computing power). While beneficial for Bitcoin miners elsewhere in the world, it has left many investors concerned by potential disruptions. This has forced the bitcoin price back down towards the symbolic level of $30,000, which continues to hold. However, the level was significantly tested last week.

On Monday, the People’s Bank of China (PBOC) stepped up measures and met with domestic banks and other payment platforms throughout the country to encourage the crackdown of cryptocurrency transactions. A statement that followed the meeting outlined that all institutions were not to provide crypto services and that links to all clients utilizing cryptocurrency exchanges or over-the-counter accounts must be terminated within a timely manner. As news broke, the price of Bitcoin cascaded through the $30,000 mark, which it hasn’t been below since late January. Although falling briefly below the symbolic marker, prices recovered by 20% during the latter half of the week. At the time of writing, Bitcoin remains just above $33,000. 

The restrictions come at a time when China continues to test its own digital currency, the digital Yuan. This leads many to believe that the recent crackdown is a way to make space for their own cryptocurrency project. Many investors speculate that the country actually believes strongly in the advantages of cryptocurrency, but only a version of cryptocurrency that it can control. Thanks to its intentional transparent design, Bitcoin does not fit within that mold. 

MicroStrategy goes Bitcoin shopping with another $489 million

It is clear that Bitcoin has struggled to regain its momentum during the second quarter of 2021. If the cryptocurrency remains at the current $30k levels it could be one of the worst quarters since 2018. This has primarily been driven by fear, doubt, and uncertainty (FUD) surrounding environmental concerns and recent restrictions imposed by China. For some, the latest price movements have divided opinion as to where Bitcoin may move to next. However, there is one company that continues to take full advantage of the cheaper prices.

According to a statement released last Monday, MicroStrategy, the business intelligence company, purchased a further $489 million worth of Bitcoin at an average purchase price of $37,617. The company now holds more than 100,000 BTC on the company’s balance sheet. 105,085 BTC to be exact. The average purchase price for all bitcoin purchases is $26,080.  

The announcement was made by the company’s CEO and Bitcoin bull, Michael Saylor, who maintains that the cryptocurrency will be the future of wealth. The faith Michael Saylor and MicroStrategy place in Bitcoin appears truly unshakeable. In early June this year, the company announced a $400 million debt raise to increase its Bitcoin holdings. The bond program was overrun by offers from investors, which caused them to increase the target to $500 million. Even without the latest purchase of BTC the company already held the largest holding of any publicly traded company. 

Inflation hits three-decade high 

A US indicator that strongly highlights inflation movements was released last week and showed that inflation values had risen to their highest in thirty years. The core personal consumption expenditures price index increased by 3.4% from May 2020, which is the quickest year-on-year increase since 1992. 

Inflation concerns are spiking currently due to supply chain disruptions and increasing energy prices. These have both been triggered by the reopening of economies after the COVID-19 pandemic. However, during the week Jerome Powell, Chairman of the Federal Reserve, outlined that although inflation pressure is strong, it is ‘very, very unlikely’ the US will see inflation figures such as those experienced in the 1970s. When questioned by a special House panel, he mentioned that factors such as the demand for airline tickets, hotel rooms, and the general consumer pressure should “resolve themselves” in the coming months. 

Though warnings of inflation usually trigger panic within equity markets, well-known indexes such as the S&P 500 and Dow Jones 30 continued to climb. Although inflation increased considerably for the year, the month-on-month result of 0.5% was actually lower than the expected result of 0.6%. This may have tempered market concern.

 

Big-ticket reports to watch out for this week:

Tuesday – US Consumer Price Index

Wednesday – China Non-Manufacturing and Manufacturing PMI, UK Gross Domestic Product (QoQ & YoY), Euro Consumer Price Index (YoY), US Employment Change

Thursday – Japan Manufacturing Index, Australia Trade Balance, China Manufacturing PMI, Euro Markit Manufacturing PMI, US Initial Jobless Claims, US ISM Manufacturing PMI, Bank of England’s Governors Speech

Friday – Canada Building Permits (MoM), US Nonfarm Payroll, US Goods Trade Balance


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