Bitcoin Graduates to Legal Tender. Bull Run on the Horizon?
El Salvador has taken significant steps to become the first country globally to adopt BTC as legal tender. This development has set a precedent and may inspire other nations on the fence to reduce the influence of central banks on their economies and adopt Bitcoin.
In the short term, this Bitcoin evolution will positively affect El Salvador, generating jobs and increasing financial accessibility to those pushed out of the formal economy. In addition, these developments have led to a stabilization in BTC value and set the stage for a potential BTC bull run.
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This Is a Big Deal
The recent gathering at the legislative assembly in El Salvador concluded with a round of applause. By a margin of 62 votes, the legislature approved the #Bitcoinlaw, which elevated Bitcoin to legal tender. Bukele has long touted Bitcoin for its capabilities to make remittance transfers easier and less expensive.
How does leveraging Bitcoin as a cross-border payment solution save Salvadorans money?
People in El Salvador are heavily reliant on family and friends abroad for money transfers. In 2019 alone, transfers using traditional fiat currencies amounted to nearly $6B. To put this into perspective, this is the equivalent of approximately a fifth of El Salvador’s GDP, one of the most significant ratios globally.
In addition, the average expense of remittance payments sent to El Salvador was as high as 5% in 2012, a fee Salvadorians no longer have to bear.
70% of citizens in El Salvador have no access to a bank account. This is a part of a bigger pool of two billion globally with no access to bank accounts because their information is not held on an easily accessible database. FinTech solutions will play a crucial role in fostering a more inclusive environment, but Bitcoin could have an even more significant impact.
Fostering Financial Inclusivity
You may be wondering, how does a lack of standard financial inclusion such as a basic banking account prevent Salvadorans or others from saving money?
Banks, credit unions, and other large financial institutions may cause headaches here and there, but a limited or complete lack of access to financial accounts is a much larger problem. Loans with reasonable interest rates and free check cashing are two significant services that we, in developed nations or those with access to a bank account, do not have to dish out hundreds of dollars for a year.
The unbanked using prepaid cards with no direct deposit can pay over $450 a year in additional fees, while a typical banked user spends less than $50. In 2018, financially excluded Americans spent a total of $189B in fees and interest on financial products, exacerbating any potential for wealth accumulation as building reputable credit is nearly an impossible task.
In addition to these agitating expenses, the unbanked cannot leverage a savings account for emergency funds. The only other option would be to hold large amounts of cash, which is risky and can lead to unwanted attention.
On the other hand, the only way to access a bitcoin wallet is using a private key. It will also accrue interest, while fiat in a piggy bank will lose buying power over time due to inflation. Given these circumstances, saving money while unbanked can, in some cases, do more harm than good, and if anything, unbanked Salvadorans are discouraged from building their financial future.
Remittance bitcoin transfers to El Salvador have exploded since last year by nearly 4x and despite representing a tiny sum relative to the driving currency, USD, the growth is promising.
In addition to financial inclusion, Bitcoin will elevate foreign investment, inspire tourism, and lead to further innovation and economic development in El Salvador. The central government of El Salvador noted that despite the new legislation, usage will be optional, will not result in elevated user risks, and will have guaranteed convertibility to the exact value at the time of exchange.
Adoption and Evolution
El Salvador’s President Nayib Bukele believes in Bitcoin’s potential but appreciates that it consumes a reasonable amount of power. This a news bite that traditional media outlets have latched onto as of late, claiming Bitcoin consumes as much power as Switzerland.
Despite having similar power costs, Bitcoin releases far fewer greenhouse gases as a by-product of its usage. Read more unpacking this media narrative here.
To tackle Bitcoins energy usage Bukele has instructed the president of the state-owned geothermal electric company, LaGeoSV, to offer facilities for Bitcoin mining with unbelievably cheap and clean power from their numerous volcanoes.
El Salvador is setting a precedent for other underprivileged economies to follow suit with proponents such as Square’s Jack Dorsey publicly supporting this development, stating that “Bitcoin incentivizes renewable energy.”
Bukele has ambitious plans to expand mining infrastructure further and expedite development entirely focused on clean, geothermal energy usage. Furthermore, to inject increased growth potential into the economy of El Salvador, Bukele announced that anyone who invests a total of three Bitcoins into El Salvador in some capacity would be entitled to permanent residency.
Bukele has likely initiated a global shift to a more inclusive financial system — the significance of this development should not be understated.
Despite a stark dichotomy between the wealthy and the poor still existing, especially regarding easy access to internet services and working cell phones, El Salvador is working to blur this divide.
A local village referred to as Bitcoin Beach has been generating considerable buzz through its socially and financially empowering missions such as delivering computers with internet access to less fortunate communities and training teachers on how cryptocurrency works and how to interact with it.
Which Nation Is Next?
In the wake of this defining bill in El Salvador, members of parliament from eight different Latin American countries have publicly expressed a similar desire for a similar result.
Among these countries are Argentina, Brazil, Colombia, Ecuador, Mexico, and Paraguay.
A nation’s money and its soundness serve to be reliable proxies of a country’s world standing, and Bitcoin is presented as one of the soundest forms of money in existence.
Panama is likely next in line, with their congressman Gabriel Silva, making his interest known on Twitter. The congressman initiated conversations on Telegram where his constituents could voice their concerns regarding El Salvador’s Bitcoin law.
This is step one of adoption. If Silva can tackle most adoption concerns other policymakers have, Bitcoin could soon see a second nation adopt it as legal tender.
Paraguay earned its share of the spotlight following Paraguayan Deputy Carlos Rejala’s intent to announce a new BTC bill in July as well as one of the top Paraguayan universities accepting tuition payments in both BTC and ETH starting August 1, 2021.
More importantly, the list of nations inching towards Bitcoin legislation is not limited to just Latin America and the floodgates may very well have been flung wide open.
For example, an open letter to the Nigerian government from NFL lineman Russell Okung presented a thought-provoking piece imploring him to contemplate a Bitcoin standard. Okung is one of several athletes receiving a portion of their salary in cryptocurrency, in this case, BTC, and managed to join the top 30 highest paid NFL athletes when it climbed to $61,000.
The volume of influential voices advocating for Bitcoin as a legal tender is only getting louder, with El Salvador having effectively blazed the trail for the next nation in line.
