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Pressure from the Salvadoran president to adopt bitcoin as the country’s legal tender is not seen as having much of an impact on the $ 663 billion bitcoin market, although it prompts other countries to do the same.
Investors, analysts and economists assessed the potential price ramifications on Monday after President Nayib Bukele said on Saturday he would submit a bill this week to recognize bitcoin as the Central American nation’s legal tender.
So far, the market hasn’t given much weight to the announcement and bitcoin (BTC) has traded in a narrow range over the past few days around $ 36,000, still a long way from near the all-time high. of $ 65,000 reached in mid-April.
Traders are still reeling from last month’s 35% price drop, which came after Chinese authorities decided to put a new review and restrictions on the cryptocurrency industry.
Crypto is seen as a way to guard against political unrest, but it will need to achieve critical mass. El Salvador’s decision against China is unlikely given its relative size, said Santiago Espinosa, a strategist at independent investment research firm MRB, in an interview.
El Salvador has a gross domestic product of $ 27 billion compared to $ 445 billion for Argentina or $ 1.8 trillion for Brazil. China’s GDP was $ 14.2 trillion in 2019, according to the World Bank.
Bitcoin prices have barely budged since the Salvadoran president’s announcement on Saturday.
Source: CoinDesk
At the margin, the bitcoin news in El Salvador could have helped offset some of the market decline, according to Edward Moya, senior market analyst at Oanda.
Bitcoin hasn’t rallied much in the news, but it has helped counter some of the negative flows resulting from heightened law enforcement concerns in China, Moya told CoinDesk in an email.
Other analysts have pointed to the inefficient use of bitcoin as a medium of exchange as the reason for the market’s lack of enthusiasm after Bukeles’ announcement.
What El Salvador needs is a stable coin pegged to the US dollar with low transaction costs and low latency, since their native currency is already pegged to the US dollar, wrote Campbell Harvey, professor. de finance at Duke University Fuqua School of Business, in an email to CoinDesk.
There are major hurdles both to making it work in a country without a functioning foreign exchange market and, more importantly, to getting people to embrace it, wrote Frances Coppola, a columnist at CoinDesk.
Coppola highlighted other countries such as Venezuela where citizens often use digital US dollars through payment apps such as Zelle compared to bitcoin for daily transactions.
Adoption catalyst
Still, others viewed the bitcoin movement in El Salvador as another signal of general cryptocurrency acceptance, which could be bullish for BTC in the long run.
People can use bitcoin to reduce their tax liability to the government of El Salvador, creating a fundamental use case for bitcoin, wrote Ariel Zetlin-Jones, associate professor of economics at the Tepper School of Business at El Salvador. Carnegie Mellon University, in an email to CoinDesk.
When Zap’s Jack Mallers, on stage at the Bitcoin 2021 conference in Miami, presented the video where Bukele made his announcement, Mallers described the move as “a small step for bitcoin.”
“It’s just another node on the network,” he said. “But this is a giant leap, and a giant leap, for mankind.”
In the longer term, according to Espinosa, it is possible that other emerging countries will follow the country’s example.
Developing countries are much more inclined to legitimize cryptocurrencies in a similar political context, Espinosa said.
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