A decade ago, Bitcoin was just an idea. Today, it is one of the most talked-about financial assets. The number of companies accepting Bitcoin is increasing each passing day. Supporters see it as a future currency that is independent of governments and central banks that can manipulate it as they see fit.
As El Salvador became the first country to make Bitcoin legal tender, China was clamping down on the trading and mining of this digital asset within the state. Being a highly speculative asset, this too took huge chunks out of its price and valuation. Beijing claims that Bitcoin disrupts the economic order and facilitates illegal asset transfers and money laundering.
China’s strong stance against crypto-coins is possibly related to concerns about the rollout of its own digital currency, the digital yuan. But El Salvador’s decision could prove revolutionary for not just the crypto community but the financial system as well. Will it provide an economic bonanza to El Salvador, still remains to be seen?
El Salvador’s Massive Move towards Adopting Digital Currency
Last month, Nayib Bukele, El Salvador’s President, announced that the country would accept Bitcoin as legal tender. He claimed Salvadorians abroad, particularly in the United States, will be able to send money home with the help of his plans. In addition, he detailed plans to build a Bitcoin mining hub in the country that will use volcanic energy generated by a manmade well.
El Salvador is a dollarized country which means it does not have its own currency. Interest rates and monetary decisions by the US Federal Reserve tend to have a massive impact on El Salvador’s economy. The pandemic is the perfect example. While many other governments have been able to print more money to fund support for poor families, El Salvador, a country without its own currency, is unable to get its own central bank to buy its debts. Instead, it has to resort to international investors or the World Bank and the IMF.
Bitcoin, however, allows it to diversify its reserves. Remittances make up almost a quarter of El Salvador’s GDP. But traditional transfer companies charge high fees which is an area that Bitcoin overcomes. Since the digital asset is decentralized with no central authority such as banks or government, the transaction fees are surprisingly low.
The dizzying fluctuations in price, however, still remain the cryptocurrency’s greatest drawback in terms of being used as a store of value. If a currency can lose a good chunk of its value in just a day, people are likely to lose confidence in it when they see the value of their saving evaporating.
Furthermore, it is not exactly easy to cash out of Bitcoin either. Although El Salvador is creating its own digital wallet and offering thirty dollars to anyone that signs up for the act.
This decision poses another threat to El Salvador’s economy. Financial institutions will need to hold more cash just in case there is a run on banks due to the volatility of Bitcoin. This means there would be less cash in the economy to fund growth. The case, however, could be completely inverse, if say, Bitcoin turned bullish and continued its trend in the near future.
Bitcoin’s Increasing Volatility And Popularity
At present, Bitcoin is valued at around $31,500. Though Bitcoin bears may be in full force now, it was not the case earlier this month. In fact, the digital asset managed to hit a record high of $64,000 earlier this spring.
It has, however, been on somewhat of a rollercoaster ride, registering blazing highs but also stomach-churning lows. And while its price has fallen since thrashing previous records, its popularity seems to be on a constant rise with more and more investors, especially big names, jumping aboard the crypto bandwagon. Trading of this digital asset has also seen increased activity.
Due to its volatile nature, cryptocurrency trading is not for the faint of heart. It is possible to encounter huge losses in a matter of days if not hours if you are not careful. This is especially true for beginners. However, the emergence of crypto trading platforms and tools has made crypto trading accessible to novice traders.
Platforms, such as Bitiq, use advanced technologies such as Artificial Intelligence (AI) and Machine Learning (ML), along with specialized software to ensure the best trading decisions are made. Offering auto-trading services, these platforms are especially geared toward novice investors who have found these platforms to be a haven of safety. Due to the fact that they make decisions on your behalf, you no longer have to spend countless hours staring at a computer screen.