Here's why Bitcoin's volatility may not be a problem as El Salvador makes it legal tender


Central American nation, El Salvador, has become the first country in the world to pass a law adopting Bitcoin as a legal tender, Wednesday.

The new law reads in part, "The purpose of this law is to regulate bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out."

The Legislative Assembly of the Republic of El Salvador passed the law today with a supermajority vote of 62 out of 84.

With this, tax contributions in the country can now be paid in $BTC, prices of goods and services can be displayed in the digital currency, payments can be made with it, and exchanges made in Bitcoin will not be subject to capital gains tax.

The law also says that the state will "promote the necessary training and mechanisms so that the population can access bitcoin transactions."

And in case you're wondering, the law also states that the exchange rate with the U.S. dollar "will be freely established by the market". 

The official currency in El Salvador is the US Dollar. 

It remains to be seen how this will impact the economy of El Salvador, where approximately 70% of people are said to not have access to traditional financial services.

The law seeks to improve access as it requires the state to "promote the necessary training and mechanisms so that the population can access bitcoin transactions."

President Nayib Bukele submitted the law to the Legislative Assembly after he announced last week that El Salvador struck a partnership with digital wallet company Strike, to build the country's modern financial infrastructure using bitcoin technology.

Since news of this new law broke today, Bitcoin has risen by as much as 13% to over $36,500 as at the time of publishing.

Also, Bitcoin Gold and Bitcoin Diamond have risen by over 29.4% and 43.2% to $64.46 and $3.7 respectively as at the time of publishing.

Bitcoin critics continue to point to it's high price volatility as a major weakness it has as a currency.

But founder of the Chamber of Digital Commerce, a blockchain, Bitcoin, digital currency and digital assets advocacy group based in the USA, Perianne Boring, made a bold prediction during a CNBC interview today saying that, "eventually all these dominos are going to fall, and what we're going to see is Bitcoin becoming a reserve asset". 


She believes that Bitcoin is becoming a substitute for gold, not for the US dollar.

On the issue of volatility, she says, "You gotta understand this technology is literally 12 years old; it's very nascent. As adoption increases, that volatility is going to level out. And if you look at volatility indexes, they are decreasing over time."

"We believe anywhere between 20-25% of households own some form of cryptocurrency today. Once we get to 80-90% adoption, you won't see that volatility."


Chukwubuikem Paul Anunaso is a civil/structural engineer based in Lagos, Nigeria. He is the Editor of The Paul Anunaso Blog and can be reached at anunaso.cp@gmail.com 

Comments

  1. Well.... I'm on track. Crypto currency is the future. I don't mind buying more

    ReplyDelete

Post a Comment