El Salvador's approval of bitcoin as legal tender has delighted cryptocurrency fans, but has left the markets unconvinced.
On Tuesday, the Congress of the Central American nation passed a bill that paves the way for the use of bitcoin in a series of daily financial transactions, from buying property to paying taxes.
It is the first time the cryptocurrency has been recognized by a national government and comes as regulators in Europe, China and North America are moving to contain the market, which has grown tenfold in recent months.
"Some larger and more powerful countries are trying to undo or slow down the inevitable shift to borderless global digital currencies," said Nigel Green, chief executive officer of financial advisory group deVere.
"But this small Central American nation has embraced the greatest of all: bitcoin."
Green said the decision makes sense for countries like El Salvador, which uses the dollar as its official currency and is interested in finding an alternative that is not accompanied by the political constraints of the US currency.
Paraguayan lawmaker Carlos Rejala Helman tweeted that his own country would soon have "an announcement" to make on cryptocurrencies.
Like El Salvador President Nayib Bukele, Rejala has added the famous laser eyes to his profile picture, a signal in support of the cryptocurrency's incredible increase in value.
Charlie Erith, of cryptocurrency manager ByteTree, said that increased usage, especially among the younger and less wealthy, could lead to a softening of regulations.
The cryptocurrency market remains in relatively poor shape
While Bitcoin rose 4,2% on Wednesday to over $ 35.000 (quotation in real time), recovering from a close of $ 30.000 the day before, the price is still down 46% from its all-time high of $ 64.870 in mid-April.
El Salvador's move didn't push the cryptocurrency's value much higher, as it did during late 2020 and early 2021, when adoption announcements from respected financial firms pushed the price up.
“Big confirmations may also have made investors skeptical, as Elon Musk has shown, if there is a turnaround it can be very counterproductive,” Erith said.
Musk, the billionaire owner of Tesla, had been a cryptocurrency advocate in the first quarter on social media, with his automaker announcing it would accept bitcoin as a form of payment and invest some of its money in cryptocurrency.
But it has since changed tune, swinging between support and criticism and further fueling market volatility.
"There is a risk that El Salvador may simply become an island in a global sea of cryptocurrency skepticism," said Susannah Streeter, financial analyst at Hargreaves Lansdown.
"Crypto transactions have already been banned and Beijing's latest target is social media, with the suspension of cryptocurrency accounts on the Weibo social media platform."