Governments Adopt Cryptocurrency: How It Affects Bitcoin’s Price
This week Ukraine and El Salvador have passed appropriate laws and regulations to legalized virtual assets. Let’s ruminate, how it’s going to affect the global cryptocurrency market.
ElSalvador accepts bitcoin as legal tender
El Salvador has officially accepted bitcoin as legal tender. The country’s president announced his decision on October 7. Previously, the only legal tender of El Salvador was the US dollar.
The proponents of bitcoin adoption assert that the use of the first cryptocurrency will result in estimated savings of $400 million on commission charges on international transactions per year. It makes perfect sense as annual remittances to Salvador amount to $6 billion, which is about 23% of the country’s gross domestic product.
Here’s what the proponents of BTC adoption say:
- The country’s president Nayib Bukele wrote on his Twitter account that “Tomorrow, for the first time in history, all the eyes of the world will be on El Salvador”. At the same time the leader of the Central America state admitted that the decision won’t generate instant effect.
- He also stated that BTC use will have a positive effect on the country’s economy and will boost employment creation.
- Mike Peterson, CEO of Bitcoin Beach project, who is responsible for bitcoin promotion in Salvador, explained that the majority of the population don’t have access to online-banking, and implementation of cryptocurrency would facilitate access to online transactions and purchases.
As of today, the authorities have acquired 550 bitcoins. In the future the cryptocurrency reserves of the state are set to be expanded.
Hundreds of bitcoin ATM machines have been installed on the streets of El Salvador, enabling withdrawal of the US dollars with no commission fees. The residents of Salvador can manage their cryptocurrency account via mobile application Chivo. Every Salvadoran will get $30 equivalent of BTC for its installation. Although there’s one minor setback – the third of the population don’t have access to internet (according to the World bank data)
How people in El Salvador respond to the news
But not all in the country shared the joy of bitcoin adoption. Hundreds of opponents took to the streets of El Salvador, including pensioners, veterans and representatives of workers’ unions. All of them expressed concern over high volatility of BTC and potential fluctuations in exchange rate.
Opposition politicians also expressed their opinion. Johnny Wright Sol in his interview said that the decision was hurried through without preliminary discussion. According to him, it took about five hours to pass the new law.
Meanwhile, Reuters’ analysts warn that cryptocurrency adoption may threaten economic development of El Salvador. Financial institutions will be exposed to serious regulatory and financial risks, namely increased money laundering.
Ukraine legalizes cryptocurrencies
The Supreme Council of Ukraine has passed the law on Virtual assets. Now, the market players can use banking services, pay taxes and enjoy legal protection. Cryptocurrencies haven’t been recognized as the legitimate medium of exchange, however Ukrainians can freely trade cryptocurrencies on exchanges.
Mykhailo Fedorov, Ukraine’s Minister of Digital Transformation, announced on his Telegram channel that the decision was made based on the large cryptocurrency turnover in Ukraine. The number of daily transactions in cryptocurrency in Ukraine is staggering, with the total value of deals standing at $37,3 million. But digital asset turnover remains in the shadows, making it impossible for foreign exchanges to enter the Ukrainian market. According to Fedorov, Ukraine has a potential of reaching leading positions in the world cryptocurrency market.
But crypto-enthusiast think otherwise. Jeremy Rubin on his Twitter account said that development and prosperity of cryptocurrencies is not dependent on political will. The reason for this is simple – the decentralized nature of bitcoin and its derivatives. That is why the Ukrainian government’s plan to legalize digital assets doesn’t look so optimistic.
What happened to BTC’s price
After the tweet of El Salvador’s president on September 7, BTC crossed the borderline of $52 thousand. That’s the highest price level since May of 2021. But on the same day the price plummeted to $43 thousand. As a result of these fluctuations, El Salvador, one of the poorest countries of Latin America, lost $3 million.
The President placed the blame for bitcoin’s fall on the International Monetary Fund, but the reason behind this catastrophe turned out to be more prosaic – the bugs in Chivo operation.
The reports of digital assets legalization in Ukraine didn’t have much effect on bitcoin’s price. After the enactment of the law, BTC’s price reached $46,900 (according to Coinmarketcap).
Legalizing cryptocurrencies: what’s next
Events unfolding in Ukraine and El Salvador could potentially encourage other countries to adopt digital assets. Some steps have already been taken in this direction.
The congressman of Panama Gabriel Silva submitted the draft law on the new initiative of the country’s development. According to the bill, Panama is to facilitate the use of blockchain and digital economy until official acknowledgement of bitcoin as a legal tender.
Ministry of Finance of Turkey has finalized the drafting of the bill on cryptocurrency. A statement to this effect was made by deputy minister Sakir Ercan Gul. The bill will be submitted for consideration this fall. Apart from the definition of rules and regulations of the cryptocurrency market, the bill is to place responsibility of monitoring virtual assets on the Financial Crimes Investigation Board.
The president of Argentina Alberto Fernandez also issued a statement. He reckons that bitcoin would help manage inflation risks, so there’s no reason to discard the possibility of cryptocurrency use.
All these reports indicate that in the future more countries will be ready to embark on the path leading to acceptance of the digital economy. It’s highly unlikely that legalization of cryptocurrencies by single countries will have a significant impact on the exchange rate. But such reports will play in hand for major market players, who might use them to push the market in the direction more advantageous to them.