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What El Salvador adopting bitcoin as legal tender means for investors

Ajeet Khurana, founder, Genezis Network said by the end of 2021, at least 4-5 more nations will adopt bitcoin as their sovereign acceptable currency. (REUTERS)Premium
Ajeet Khurana, founder, Genezis Network said by the end of 2021, at least 4-5 more nations will adopt bitcoin as their sovereign acceptable currency. (REUTERS)

  • According to experts, EI Salvador's decision to make bitcoin a legal tender will boost financial inclusion in their country as majority of the population does not have access to formal banking channels

El Salvador, in a historic move on Wednesday, became the first country in the world to officially adopt bitcoin as the legal tender. The Latin American nation’s Congress approved President Nayib Bukele's proposal to embrace the cryptocurrency with 62 out of 84 possible votes.

El Salvador is among the few countries in the world that don’t have their own fiat currency, and uses the US dollar as a legal tender. "It will bring financial inclusion, investment, tourism, innovation, and economic development for our country," Bukele said in a tweet before the vote in Congress.

Bukele had earlier said that the country was designing a new law that would grant permanent residency to any individual who invests three bitcoins into El Salvador’s economy.

Impact on the bitcoin market

According to experts, El Salvador’s move has changed the fundamentals of the bitcoin market. Moreover, the Latin American nation’s announcement is expected to address the concerns of many individuals. The most common objection that people had regarding bitcoin is its backing and volatility.

“While these complaints are valid, they are valid only if you compare them to the top 30-40 currencies. There are 14-15 countries, which don’t have their currency and they typically use the US dollar. As a result, bitcoin or any other form of cryptocurrency is as good for them as these countries are dependent on the US monetary system and the policy," said Ajeet Khurana, founder, Genezis Network, a think tank for crypto startup investments.

According to Khurana, before the year 2021 gets over, there will be at least 4-5 more nations adopting bitcoin as their sovereign acceptable currency.

“In terms of people’s concerns, a worry that bitcoin has no intrinsic value will go away now. Everything about this move is positive, however, how positive, will depend on the way global establishments such as central banks and the government react to it," said Khurana.

Impact on Indian investors

According to experts, EI Salvador's decision to make bitcoin a legal tender will boost financial inclusion in their country as majority of the population does not have access to formal banking channels.

“In India, our approach towards crypto is different, we don’t see it as a legal tender but as an asset class. Indian investors have shown their faith in crypto even during the massive price fluctuations because they have an investment horizon of two-three years. We are eagerly waiting for CBDC in India which will open up new avenues of growth for the digital asset industry," said Shivam Thakral, CEO, BuyUcoin.

Why did El Salvador’s move fail to boost bitcoin?

The prices of bitcoin saw only a minor uptick following El Salvador’s ‘historic’ move. The world’s biggest cryptocurrency was trading 3.9% higher at $34,233.30 at around 2.51 pm IST, as per CoinGecko.

According to experts, there is still fear of the unknown in the market.

“Events such as El Salvador’s move, Elon Musk’s tweets or others triggers, are more like sparks and not the fuel. The crypto market is always sitting at a certain position of being overbought or oversold, and this is the primary driver or the fuel. People are not clear as of now that how El Salvador’s move will unroll. So, there is a worry, that for it to actually play a role in the marketplace is going to be a very long-drawn-out process," said Khurana.

ABOUT THE AUTHOR
Abhinav Kaul
Abhinav Kaul writes on cryptocurrencies and mutual funds at Mint. His previous stints include ETMarkets, Reuters Bangalore and Press Trust of India.
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