Global Financial Risks of Cryptocurrencies: a Case Study of El Salvador

Abstract

Cryptocurrencies are blockchain technologies, offering a pseudo-anonymous way for wealth distributions. Cryptocurrencies are known for price volatility and for their involvement in organized crime (Campbell-Verduyn, 2018: 3-29, 88-108). The main object of the research is to illustrate the illicit applications of cryptocurrency and demonstrate how they can be used in international crime. The research hypothesis assumes cryptocurrencies employing new channels of illicit activities and that their popularity will continue to grow regardless of the regulation. The paper investigates the rationale behind the boosterism of cryptocurrency and identifies who benefits from it. The case study is regarding El Salvador, as Salvadoran government ventures on accepting Bitcoin as a form of legal tender to gain economic stability and independency from the USA. The paper hypothesizes that El Salvador’s Bitcoin endeavor will not become successful and will cause more financial damages to the Salvadoran economy than benefits. The preliminary hypothesis of the success of Salvadoran Bitcoin endeavor was accurate. The markets and institutions reacted negatively to the news of Bitcoin adoption in El Salvador. The endeavor was deemed a catastrophe by International Monetary Fund (Adrian and Weeks-Brown, 2021; Vizcaino and Maki, 2022). The research hypothesis assuming that cryptocurrencies employ new channels of illicit activities was proven accurate. The research found linkages between transnational crime and cryptocurrency applications. Rationale behind boosterism credited to the illusion of trust which cryptocurrencies desperately need to survive. The research hypothesis presumed that cryptocurrency popularity will continue to grow regardless of the safety concerns. The hypothesis was proven correct as cryptocurrency adoption has increased significantly.