Bitcoin has badly needed a boost for most of the past month. Like almost every cryptocurrency, its fortunes have dwindled during the past 6-10 weeks. Also like most cryptocurrencies, the reason for the sudden collapse in value isn’t clear. At one point earlier this year, a single Bitcoin was worth more than sixty thousand dollars. After falling back to a pinch above thirty thousand dollars at the end of May, the coin is trading at around thirty-four thousand dollars when we wrote this article. The price is moving around so quickly that we wouldn’t be surprised if it had changed again by the time you read this. Maybe it’s back down to thirty, or perhaps it’s recovered to forty. The latter seems more likely thanks to some surprising news from El Salvador.
Bitcoin’s struggles in the past month can at least partially be blamed on unhelpful comments made by Elon Musk and Donald Trump. The coin’s value is heavily affected by positive or negative news coverage of it, so bad press means price crashes. Now it has some good press – and it comes in the shape of a world first. The tiny Central American nation El Salvador has become the first country on Earth to approve the use of Bitcoin as legal tender. Unlike the United States of America, where many prominent conservative voices see Bitcoin as a threat to the native currency, El Salvador sees it as the perfect partner.
The historic bill was passed on June 9th and paves the way for Bitcoin to be accepted as a means of making payment for all goods and services in the country. If you want to pay your taxes with Bitcoin, you’ll be welcome to do so. If you’d like to use Bitcoin to purchase your next car or home, you can do that as well. The bill doesn’t only mean that vendors and businesses can accept Bitcoin payments if they wish to – it compels them to do so by law. Exceptions may only be granted if, for whatever reason, the vendor doesn’t have the necessary technology to process Bitcoin payments. The specifics of those exemptions aren’t yet clear. More is expected to be known about them in the coming days.
The new bill and policy, which had been expected to pass for several days before it happened, is a pet project of El Salvador’s president Nayib Bukele. He and his advisors believe that accepting Bitcoin will make it easier for El Salvadorians living elsewhere in the world to send money back home and support their families. He also believes it will make it easier for residents of El Salvador to open bank accounts. Bank account ownership in El Salvador is a novelty. The last time analysts performed an official survey, they found that more than seventy per cent of El Salvador’s people don’t own a bank account at all. They keep their money in physical cash, which makes them vulnerable to theft and loss. This is a contributing factor to the fact that around forty per cent of El Salvadorians are classified as living in poverty.
The desire to become the first country in the world to unilaterally welcome Bitcoin might have been motivated by the fact that El Salvador doesn’t have a currency of its own. Before the passing of the bill, the only legal currency in the country was the US dollar. The ease with which El Salvadorian ex-pats can send money back home might not sound like it should have been a deciding factor to outsiders, but it’s of critical importance to the country’s people and government. It’s thought that money sent from abroad accounts for one-fifth of the country’s entire GDP. Roughly two million El Salvadorians have left their homeland to seek work abroad – mostly in the USA – and send a combined six billion dollars back home between them each year. Because of the fees taken by intermediaries, millions of dollars are lost before they reach the hands of their intended recipients. This shouldn’t be the case if the money is sent as Bitcoin.
While this might have been an important factor, it wasn’t the only factor. The government of El Salvador knew that a “world-first” bill would attract international attention, and they were right. Romeo Auerbach – a key political ally of Nayib Bukele – believes that removing all restrictions on Bitcoin’s usage will make the country popular with cryptocurrency investors. If he’s right, that could result in several billion dollars of new investment washing into the country and making a material difference to its poverty statistics.
Whether or not Bitcoin investors choose to direct their resources El Salvador’s way, this new level of acceptance is almost guaranteed to have a positive effect on Bitcoin’s value. It’s also yet another step on the road to mass acceptance of the currency on a global scale. In the past few years, we’ve seen houses bought using Bitcoin, works of art paid for with cryptocurrencies, and even dedicated online slots websites that accept payment via Bitcoin and nothing else. There’s now a niche market of Bitcoin-orientated online slots websites that use the fact that they accept crypto as a marketing hook. The casino industry hasn’t universally accepted crypto yet, as is evidenced by the fact that the newly-launched Rose Slots CA is getting by just fine without it- but it might get there one day. It could be argued that if people can win or lose money with Bitcoin at online slots websites, there’s no reason why it can’t be accepted anywhere else. Ten years from now, it might be accepted everywhere.
El Salvador is the first country on the planet to formally accept Bitcoin, but it won’t be the last. It will take a country bigger than this to make a significant difference to the international opinion of cryptocurrency, but this could be the first link in the chain. If El Salvador’s economy improves sharply because of the move, expect other Central American nations to follow suit. From there, it could easily spread into South America. The USA is unlikely to see a case for accepting it, but many smaller European nations will be watching these developments closely. In the future, history books might record June 9th 2021 as the day that the crypto revolution truly began.