Bitcoin (CRYPTO: BTC) is deep in the red, down more than 11% in the past 24 hours to US$46,746 (AU$63,170).
That's the digital token's steepest daily fall since it began a remarkable rebound on 20 July. At that time, it was worth US$29,731, having fallen from a record high of US$64,889 in mid-April.
And, as we often see, where Bitcoin goes, most altcoins follow.
The top 4 coins by market valuation are all deep in the red today, including number 2 crypto Ethereum (CRYPTO: ETH). Ether is down 12% since this time yesterday to US$3,470.
What's driving the Bitcoin selloff?
Most fingers are pointing squarely at El Salvador for driving the current Bitcoin retreat.
The Central American nation is in the midst of a world first experiment by making Bitcoin its national currency alongside the US dollar.
El Salvador's decidedly unconventional president, Nayib Bukele, is the driving force behind the move which follows the nation's economy contracting last year at a pace not seen in 40 years. The nation's citizens can now pay for goods and services, alongside their taxes, with the world's number one crypto.
Of course, for that to work, El Salvador's government's cryptocurrency wallet, Chivo, also needs to function as advertised.
And therein lies the likely cause for Bitcoin's plunge.
As Bloomberg reports:
Twitter users reported being able to pay for services such as breakfast at McDonald's with Bitcoin. But the cryptocurrency plunged as much as 17% to its lowest level in a month amid news that the government disconnected its Bitcoin wallet early on Tuesday to fix problems.
While Chivo came back online later, it may well have shaken confidence in the government's ability to deliver a reliable exchange platform.
The government has gifted users who register with their Salvadoran national ID number with US$30 worth of Bitcoin in an effort to increase its use.
However, far from everyone is a believer.
Jorge Colorado is a US-based Salvadoran anthropologist. He aired his concerns about Chivo and the El Salvador's wider Bitcoin rollout to CoinDesk:
The bitcoin thing was presented by Bukele at a meeting of bitcoiners in Miami several months ago. It was a presentation in English. The following day all the information was in English and was [not] communicated to the people [of El Salvador] until many days later, with very little information, almost superficial…
The Chivo wallet contracts are secret, there was no bidding, public money has been used as if it were private money.
It may be more than just Chivo glitches
The Bitcoin price is notoriously volatile.
And while the 11% fall is the biggest in several months, there are likely other factors at play.
Like crypto investors getting set for an end to the era of post-pandemic easy money.
According to Chris Weston, head of research at Pepperstone Financial Pty, "Could it also be that the liquidity beneficiaries – which could include crypto – may be sensing more normalized future policy setting from major central banks?"
