Users of the Salvadoran government’s Chivo wallet will not be able to see frozen price quotes until the feature has been removed to deter arbitrage scalpers.
The Salvadoran government has moved to prevent users of its Chivo digital wallet from gaming the app’s price freeze feature to glean risk-free profits through arbitrage.
On Tuesday, Chivo’s Twitter account announced that wallet users will be unable to see the reference price provided for trades executed using the price freeze feature — which allows traders to retain the Bitcoin (BTC) price quoted by the app for up to one minute.
Chivo tweeted that opportunistic traders have been using the price freeze feature to scalp for arbitrage across other cryptocurrency trading platforms globally during periods of significant price volatility for Bitcoin. The frozen price feature gave traders an opportunity to take advantage of price gaps in other exchange rates while quickly using the Lightning Network to move assets, Chivo explained.
“The ‘scalping’ carried out consisted of taking advantage of the fact that Chivo kept the rate frozen for 1 minute and taking advantage of that minute to compare the rate with other exchanges and see if the price of Bitcoin went down or up.”
Despite high-frequency scalping comprising a legal form of trading, Chivo describes traders who used Chivo’s frozen prices to arbitrage against real-time exchanges as being extracting potentially “endless” profits through “fraud.”
Looking forward, Chivo plans to remove the price feature and offer real-time price references for Bitcoin traders using its app.
On Sept. 7, El Salvador enacted its controversial Bitcoin Law recognizing BTC as legal tender nationwide.
Despite critics highlighting the low rates of digital and blockchain literacy among Salvadorans in the run-up to the law taking effect, the legislation appears to have fostered widespread Bitcoin adoption across the country.
Salvadorans now appear to be exchanging their United States dollar savings for BTC at an accelerating pace, with President Nayib Bukele sharing that Chivo had recorded 24,076 remittance requests worth more than $3 million on Thursday.
On Oct. 10, the Salvadoran government also announced its plans to invest part of the $4 million worth of profits from Chivo’s Bitcoin trust to construct a new veterinary hospital in the local capital of San Salvador.