With Salvadorans now able to pay their taxes and buy pupusas with Bitcoin, crypto enthusiasts are already asking: “Which country will be next?”
Depending on who you ask, the first country to make Bitcoin a form of certified legal tender could pave the way for the world to follow suit — or it could be a short-term experience that will only draw more tourists to the country’s glistening, dark-sand beaches.
The first few days were certainly bumpy, marred by protests in the capital, glitches in the government-backed Bitcoin app, and a 15% drop in the value of the cryptocurrency.
Whatever the outcome, El Salvador’s move is likely to encourage more US investors to buy the original cryptocurrency, but it may take some time before they can use it to buy a burger themselves.
Why did El Salvador adopt Bitcoin?
In many countries, Bitcoin is already a legal method of payment, assuming the recipient accepts it. But as of Tuesday, it’s El Salvador require All merchants accept it if they have the technology to do so. Big companies like Starbucks and McDonald’s have jumped on board.
Salvadoran President Najib Bukele signed the law on June 9 with the stated aim of modernizing the country’s economy. “This will create jobs and help provide financial inclusion for thousands outside the formal economy,” Bukele said at the Bitcoin 2021 conference in Miami.
Ben Weiss, CEO of crypto ATM provider CoinFlip, says that a large portion of the Salvadoran population – up to 70% – does not have access to traditional banking, which makes it a natural fit for Bitcoin.
“You have a large population that is unbanked and unbanked; you have a huge disparity in wealth; you have generations of people used to inflation and hyperinflation,” Weiss says. Others are due to history.
The Central American country of about 6.5 million people relies heavily on remittances: money sent to Salvadoran citizens from family members and friends working abroad. According to World Bank data, the country had nearly $6 billion in remittances in 2019 – 21% of GDP.
Weiss and other proponents say that using cryptocurrency can make it faster to send money home and avoid shared fees. Bukele says Salvadorans can save $400 million annually on commissions with Bitcoin.
What are the risks?
Dante Mossi, President of the Central American Bank for Economic Integration, expressed his “extreme optimism,” adding in a statement that he is confident that El Salvador will work to ensure that the currency is a secure means of payment for its citizens.
But critics say proper precautions are not in place, and that the move complicates El Salvador’s discussions with the International Monetary Fund over a $1 billion loan program.
Rating agency Moody’s downgraded El Salvador’s credit rating after the bitcoin law was first announced.
“This may just reflect a long-term initiative or maybe just a flashy PR tactic,” Siobhan Morden, Latin America analyst at Amherst Pierpont Securities, said in a Reuters report. “However, it shows a lack of coordination with impulsive statements that go against a coherent economic plan.”
International Monetary Fund spokesman Jerry Rice says officials are following developments closely.
“The adoption of bitcoin as a legal currency raises a number of macroeconomic, financial and legal issues that require very careful analysis,” Rice said in a June 10 press briefing.
Could it happen here?
Weiss says that Bitcoin has already begun to spread in the US for large purchases. Tesla briefly accepted the cryptocurrency earlier this year.
“You won’t see it for $4 Starbucks, but you will see it to buy a house or a car,” Weiss says.
However, other Latin American countries are likely to become more open to cryptocurrencies as part of their financial systems long before the United States does, Weiss says.
Since Bitcoin is not regulated like traditional currencies, many governments worry about possible money laundering and tax evasion. President Joe Biden has proposed stricter reporting rules for cryptocurrency transactions to eliminate tax fraud.
In the US, interest in Bitcoin is primarily driven by investment due to its volatility. Thousands of people became millionaires as Bitcoin soared to an all-time high of $63,000 in mid-April – although the coin has lost about a quarter of its value since then.
Is Bitcoin worth investing in?
It depends. Giant fluctuations in value are not for the faint of heart, and without the proper precautions, losing money is a very likely outcome. Investing in bitcoin also comes with less protection than other types of investments and is not insured by the government.
However, popular investors like Paul Tudor Jones and financial gurus like Suze Orman love the idea of keeping a small percentage of your portfolio in crypto. If you are eager to buy some bitcoin, you can do so in four easy steps.
Americans who aren’t quite ready – or follower of Warren Buffett, who despise them – have plenty of other investment options.
One of the popular applications allows you to invest in a diversified portfolio using only “incremental change”. Based on your financial goals and risk tolerance, the app will recommend the most suitable portfolio for you.
If you prefer a more realistic investment – one that can provide a shield against volatility – a private investment platform allows you to join other investors to buy stakes in individual farms. The intrinsic value of food not only offers great stability, but also great growth potential.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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