El Salvador’s adoption of Bitcoin as legal tender has compelled analysts on Wall Street to re-evaluate their positions on the currency’s future. Once considered a niche asset, the digital currency is now under review in several countries, some of which are designing legal frameworks to regulate its movement. Many are wondering if this sea change in official attitudes can help Bitcoin replace fiat currencies like the dependable dollar.
Can Bitcoin Replace Fiat Currencies Like Dollar
In the recent past, several corporate giants have openly embraced Bitcoin by featuring it in their investment portfolios. The likes of Tesla, MicroStrategy, and Square have led the corporate crypto revolution, by parking their assets and offering transaction services to customers in the virtual currency. Some have also taken it upon themselves to ensure a greener future for the industry by reducing its energy consumption.
With El Salvador adopting Bitcoin on a nationwide scale, the focus is turning on authorities across the world. For the last 20 years, the country had been using the U.S. Dollar to carry out financial transactions. However, President Nayib Bukele sent shockwaves throughout the globe when he announced that his country was in the process of legalizing Bitcoin. The populist leader claimed the move was motivated by an interest to include more people in El Salvador’s formal economy and lessen the tax burden on remittances sent home.
Observers feel that the tropical country’s stunning decision may be linked to a broader change. Many are wondering if replacing a conventional currency — in this case, the dollar — on a national level will spark an international shift.
Dollar Will Evolve With Adoption of Blockchain Technology
For Julian Sawyer, the chief executive officer of Bitstamp, a Bitcoin exchange based in Luxembourg, the crypto sphere is not quite there yet. In a telephonic interview, Sawyer stated “There’s been a lot of people who have sat in the crypto world who’ve said, ‘Oh, crypto is going to take over the world and traditional banks and central banks will go away. That’s not going to happen.”
Blockchain technology itself has the promise to change the way traditional banking works, and in time it will trigger an evolution in the sector’s services. But cryptocurrencies, according to sawyer, will not completely diminish the importance of the dollar owing to their volatility.
Speaking on the potential changes in banking, Sawyer added, “Will there still be the dollar? Yes, Will there still be Visa and Mastercard? Absolutely. It will just be we’ll have alternatives for using plastic, or paper, or coins or checks.”
Fiat Currencies Do Not Fluctuate as Much as Bitcoin
Experts believe global commerce benefits greatly from the dollar’s stability. As compared to Bitcoin, which sees fluctuations after tweets and memes, the dollar’s value only moves a little due to systemic reasons. This quality, in particular, makes the dollar ideal for countries looking for stability.
Since April, Bitcoin has shed nearly 50% of its market value. According to Bloomberg Dollar Spot Index, the primary cryptocurrency quadrupled in value last year. Meanwhile, the dollar slipped by 5.5%. This stark contrast between the movements of the two currencies shows why the dollar remains the foundation of international trade. The Bank of America has found Bitcoin nearly four times as volatile as the Turkish Lira and Brazilian Real. Neither of these is considered to be a model of stability.
El Salvador Could Make a Case for BTC Adoption
Nevertheless, El Salvador’s Bitcoin friendliness can prompt other countries to board the crypto bandwagon. Following the passage of the groundbreaking legislation in El Salvador, many Latin lawmakers have come forward on social media, advocating for their nations to reconsider cryptocurrencies. Leah Wald, CEO of Valkyrie Investments believes that many countries cannot afford to look away from this option anymore. She said, “For the longevity and health and well-being of Bitcoin, and the Bitcoin network, this is the dawn of a new day.”
Haiti, Guatemala, South Sudan, and Liberia could be the next on the list of countries that adopt Bitcoin due to their dependence on remittance revenues. Other countries that have organized their economies around the dollar, could also become good candidates to legalize cryptocurrencies while reducing their reliance on the U.S. Federal Reserve and its policies.