Users of the Salvadoran government’s Chivo wallet can no longer see the frozen Bitcoin (BTC) quotes. The feature is reportedly being removed to deter arbitrage scalpers.
Measures against scalpers
The Salvadoran government has taken action against arbitration scalpers. It wants to prevent users of its digital wallet Chivo from using the price-freezing function of the app to gain risk-free profits through arbitrage.
On October 19, Chivo’s Twitter account announced that wallet users will no longer be able to see the reference price for transactions performed using the price freeze feature. As a result, the BTC price specified by the app is fixed, for a maximum of one minute.
Chivo tweeted that opportunistic traders have used the price freeze feature to scalp for arbitrage across other cryptocurrency trading platforms worldwide. This is done during periods of significant price volatility for Bitcoin. The frozen price feature gave traders the opportunity to take advantage of price differences in other exchanges. They used the lightning network to move assets quickly, Chivo explained.
“The scalping performed consisted of taking advantage of the fact that Chivo kept the price frozen for 1 minute. In that minute, the price was compared with other exchanges. This way you could see whether the price of Bitcoin fell or rose.”
High-frequency scalping is a legal form of trading. However, Chivo describes this form of trading as potentially making “endless” profits through “fraud”. Chivo plans to remove the pricing feature. It is going to provide real-time price references for Bitcoin traders.
Bitcoin in El Salvador
On September 7, El Salvador issued its controversial Bitcoin law, recognizing BTC as legal tender. Despite critics pointing to low digital and blockchain literacy rates among Salvadorans in the run-up to the law’s enactment, the legislation appears to have promoted Bitcoin adoption around the world.
Salvadorans now seem to be exchanging their US dollar savings for BTC at an accelerating pace. President Nayib Bukele shared that as of October 14, Chivo had registered 24,076 remittance requests worth more than $3 million.
El Salvador also announced its plans to invest a portion of the $4 million in profits from Chivo’s Bitcoin trust on October 10 in the construction of a new veterinary clinic in the local capital, San Salvador.