Last month, the El Salvador Congress passed the “Bitcoin Law” with 62 votes in favor of 84 members, opening the world for the first sovereign state to use Bitcoin as legal tender.
It is reported that the bill will allow bitcoin as all forms of payment in the country, and it must be accepted when a person who obtains goods or services provides bitcoin to him.
Recently, the bill has continued to ferment, and it can be said that a single stone has stirred up waves and has attracted heated debates from all sides. Many people in the industry believe that this will be the biggest benefit for Bitcoin in 2021, and it is a historic moment. And because of “economic and legal issues,” the International Monetary Fund expressed its concern.
I have to say that although El Salvador has taken the first step, more importantly, when Bitcoin officially circulates as a “legal currency”, will it help El Salvador stabilize the domestic economic fundamentals, attract foreign investment and promote consumption? The efficacy of the product has yet to be verified.
Lu Xun once said, “The first person to eat crabs is a warrior.” As the first country to eat crabs, El Salvador is undoubtedly bold under the superposition of high dollar inflation and high Bitcoin volatility.
El Salvador embraces Bitcoin
At the time of the domestic containment of “Bitcoin mining and trading behavior”, Bitcoin ushered in its major benefits: On June 9, El Salvador’s Congress voted to approve the proposal of Bitcoin as legal tender submitted by the President, and it became The first country in the world to recognize Bitcoin as a legal currency, the bill will take effect on September 7.
El Salvador’s Congress voted to approve the proposal of Bitcoin as legal tender submitted by the President
“El Salvador granted Bitcoin legal tender status. This really happened.” The old Leek in the currency circle was excited. Many Bitcoin fans even believe that the future of Bitcoin is here, but it is not yet popular.
According to statistics for 2019, El Salvador has a population of 6.705 million. In 2019, the GDP was 26.75 billion U.S. dollars, and the per capita GDP was 3,941.88 U.S. dollars. In addition, statistics show that the domestic economy is dominated by agriculture, with a weak industrial foundation, making it one of the “low- and middle-income countries” in the world. In recent years, affected by the international economic and financial crisis, economic growth has been slow.
Especially at the beginning of this century, the original legal currency “colón” depreciated sharply due to hyperinflation, and El Salvador adopted the U.S. dollar as its settlement currency. Since the outbreak of the epidemic, the United States has printed a lot of money, and the inflation rate in the United States has continued to rise, forcing countries around the world to actively seek solutions.
“The President of El Salvador, Nayib Bukele, promoted the legalization of Bitcoin. Perhaps it was a slant sword to crack the small country’s economy from the impact of dollar inflation.” Industry analysts believe that the U.S. dollar and Bitcoin are foreign objects and are “competing on the same platform” in El Salvador. It is a small country responding to positive changes in the international economic situation.
“El Salvador is determined to advance the legalization of Bitcoin and believes that it will be a leap for mankind.” Nayib Bukele said in an interview that this move will promote employment and the economy, and reduce El Salvador’s dependence on the current legal currency, the US dollar. He also said, “I am very sure that this is not only useful for us, but also useful for all mankind, because this is a leap for mankind.”
As El Salvador passed a law to make Bitcoin a legal tender, many parliamentarians in Latin American countries expressed interest in Bitcoin. These countries include Paraguay, Argentina, Panama, Brazil and Mexico.
In addition, according to media reports, Tonga Islands and Tanzania have also expressed interest in Bitcoin. At the same time, Panamanian Congressman Gabriel Silva congratulated El Salvador for passing the Bitcoin bill and said that in addition to developing the canal and free trade zone, Panama also bet on knowledge economy, high-quality education and innovative enterprises.
Bitcoin Orientation Proving Ground
For a long time, Bitcoin’s believers and opponents have faced each other tit-for-tat, which seems to be irreconcilable. Analysts believe that Bitcoin has become a country’s legal tender for the first time, and its symbolic significance and influence on crypto assets cannot be ignored.
“This time the government of El Salvador has given Bitcoin the official currency status, which has become a once-in-a-lifetime opportunity to verify whether Bitcoin is suitable for currency.” The Securities Times believes that, on the one hand, if this experiment is successful, Bitcoin will achieve great development in one go. , Not only will more countries follow suit, it will also be sought after by billions of people in the world; on the other hand, if the experiment fails, it will prove that the advantages of Bitcoin that some people believe are illusory, and Bitcoin may encounter frustration.
What’s more worth mentioning is that many people in the industry believe that the huge volatility of Bitcoin may affect the investment and consumption of the people of El Salvador.
In view of this, El Salvador believes that the exchange rate between Bitcoin and the U.S. dollar should be determined by the market. Not long ago, the Minister of Trade and Investment of El Salvador stated that in El Salvador, Bitcoin transactions will be freely decided. The U.S. dollar will continue to be the legal tender of El Salvador, and Bitcoin operations will be pegged to the U.S. dollar exchange rate.
Wall Street financial analyst and Bitcoin supporter Max Keiser tweeted that Bitcoin is flawless and that it gives freedom to those who embrace it. El Salvador’s achievements are no less than the miraculous bequest of the constitution and bill of rights by the founding fathers of the United States. El Salvador Get rid of the International Monetary Fund.
At the same time, Nayib Bukele also stated that the government will provide each citizen with $30 in Bitcoin, and officially adopted Bitcoin as legal tender on September 7 this year. At that time, there were an estimated 4.5 million adult citizens. Based on this calculation, El Salvador will buy 135 million US dollars worth of Bitcoin, and the number of Bitcoin users will immediately increase by 2.50%.
On July 2, according to data provided by the blockchain analysis company Glassnode, the 7-day moving average of the number of active Bitcoin addresses fell to 758165 on Wednesday, the lowest level since April 2020. Charlie Morris, chief investment officer of ByteTree Asset Management, said the decline in active user engagement indicates weak demand. The hype cycle is now over, and the market cannot attract new entrants at the same rate. In addition, cryptographic analysis company CryptoQuant tweeted that the number of active Bitcoin addresses reached a two-year low on June 27.
Many old leeks in the currency circle believe that El Salvador will play a positive role in expanding the number of Bitcoin users and transaction volume.
“Fat moneyization” is full of thorns
“Even though Saar uses Bitcoin as legal currency, it is impossible to fundamentally change the current global regulatory and accounting environment that hinders the application of Bitcoin to payments.” Analysts believe that Bitcoin is still an crypto asset for other countries. , Is not equal to foreign currency.
Not long ago, JPMorgan Chase poured cold water on El Salvador’s major decision to use Bitcoin as legal tender. In a recent report, JPMorgan Chase wrote that adopting Bitcoin is “difficult” to see any “tangible economic benefits”.
JPMorgan Chase also added that El Salvador’s decision to adopt Bitcoin as its second form of legal tender may jeopardize its negotiations with the International Monetary Fund. To make matters worse, JPMorgan Chase claims that this incident may affect the way larger economies treat Bitcoin.
“El Salvador’s use of Bitcoin as legal tender has caused a series of macroeconomic, financial and legal issues.” International Monetary Fund spokesperson Gerry Rice also said earlier that we are closely monitoring developments and we will continue to consult with the authorities.
At the same time, the International Monetary Fund also stated that it will meet with El Salvador’s President Nayib Bukele to complete a discussion to support the Central American country’s relief loans. In addition, El Salvador’s decision to use Bitcoin as its national currency will be the focus of the IMF team meeting.
According to media reports, Victoria Nuland, a long-time U.S. State Department official and current Deputy Secretary of State in charge of political affairs, recently met with the President of El Salvador and urged his government to do its best to supervise Bitcoin and avoid any potentially illegal activities related to cryptocurrencies.
The World Bank also stated that it cannot help El Salvador implement Bitcoin-related bills due to environmental and transparency deficiencies. Will work to help El Salvador, including improving currency transparency and regulatory procedures.
According to Reuters, data from Chainalysis, a US cryptocurrency research institute, showed that small bitcoin transfers of less than US$1,000 in El Saldova in May totaled US$1.7 million, compared with US$424,000 in the same period last year. However, compared with US dollar remittances, this figure is still a small amount. According to data from the World Bank, in 2019, El Salvador’s transfers in traditional currencies amounted to nearly US$6 billion, accounting for about one-fifth of GDP, one of the highest rates in the world. In addition, the World Bank found in its latest report that in the first three months of 2021, remittances to El Salvador jumped by a third year-on-year, with approximately 95% of them coming from Salvadorans working in the United States.
For El Salvador, it will take time to gradually implement whether Bitcoin is truly universally used by the people of the country. Whether the International Monetary Fund and others can help solve a series of financial and legal issues is also a way to go.