Fitch warns Salvadoran Bitcoin law could pose significant risks to financial sector

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Fitch Ratings pointed out that there are certain risks associated with Salvadoran Bitcoin legislation. The credit rating agency suggested that companies should either keep their BTC or sell the digital asset quickly to avoid price risk. Fitch further said the decision to adopt Bitcoin as legal tender was “unnecessarily rushed.”

While El Salvador’s decision to make Bitcoin legal tender in the country has attracted a lot of attention, concerns have also arisen. Fitch Ratings also joined with the International Monetary Fund (IMF) in expressing concerns about the possible consequences of the new legislation.

Financial Firms Would Face BTC Volatility Risks

El Salvador President Nayib Bukele has announced that the country will recently adopt the main cryptocurrency as legal tender, marking a turning point for the new asset class.

However, protests, lawsuits and criticism followed after the decision was made, including El Salvador’s opposition party suing the government over the new Bitcoin legislation.

Fitch Ratings suggests there could be negative consequences as it introduced Bitcoin as legal tender, highlighting the financial and insurance sector in particular. The new law would require these institutions to keep their BTC or sell their cryptocurrencies to avoid price risk.

Bitcoin is expected to be legal tender in the country on September 7, and exchange rate volatility remains a risk factor for the sovereign. Fitch believes that the process of adopting the primary digital asset is “unnecessarily rushed”, leaving little time for financial firms to adjust.

The IMF has also expressed concern over digital assets, saying the new asset class could present significant risks and that effective regulatory measures need to be in place to deal with cryptocurrencies.

According to IMF spokesperson Gerry Rice, adopting Bitcoin could raise a number of macroeconomic issues. Bukele responded that he would try to explain that the decision to make benchmark cryptocurrency as legal tender would not change their macroeconomics.

Rating agency Moody’s Investors Service downgraded the Salvadoran government rating because it believes there could be increased uncertainty about the potential new round of IMF funding after Bitcoin is adopted as legal tender.

According to Moody’s, El Salvador’s financial outlook remains vulnerable and sensitive to funding shocks. If the country saw limited availability of financing alternatives, Moody’s added that the sovereign would continue to face liquidity pressures in the future.

Bitcoin price to retest the reliability of the support

Bitcoin’s price is seeing a slight pullback as it again tests a crucial 200-day Simple Moving Average (SMA) support line on the daily chart.

Bitcoin’s price needs to close above the aforementioned support at $ 45,592 for BTC to have a chance to continue its rally.

However, should a selling pressure arise and the major cryptocurrency slice below this level, the 20-day SMA would become the next line of defense at $ 43,430, ahead of the 38.2% extension level. Fibonacci at $ 42,635.

BTC / USDT Daily Chart

On the upside, if the price of Bitcoin is able to hold trade above the 200-day SMA, the next hurdle for BTC is at the 50% Fibonacci extension level at $ 46,901 before hitting the diagonal trend line, which coincides with the 61.8% Fibonacci extension level. at $ 51,167.

The next few days are crucial for investors, as a slight move in either direction can paint a very different picture of the outlook for BTC.

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