El Salvador’s adoption of Bitcoin itself may not have a major impact on the price directly. Providing every El Savadorian with USD 30 worth of Bitcoin, which equates to 0.00058 Bitcoin will not move the market enough to deviate from the strong upward price swings Bitcoin has been showing for the last four weeks. The marketing and awareness effect from this event however may indirectly drive momentum and further adoption. The on-chain metrics of Bitcoin in itself are stronger than they have rarely been in Bitcoins entire history. The general expectation is that regardless of El Salvador’s adoption, Bitcoin is poised for a big leg up in the very short term. The combination of the two effects may however turn out to be very interesting.
Bitcoin is well on track to show a new ATH near term with substantial further potential until the end of the year. The adoption of further countries may have a longer-term impact if we see that this becomes the norm rather than the exception. The prisoner’s dilemma, an economic theory, which is clearly at play here will make it hard for countries to resist. We expect to see a tipping point very early in the adoption process, where if enough central banks adopt Bitcoin it will be the logical reaction of further central banks to follow immediately. It will then be interesting to see potential volumes, which may have a more substantial effect on price depending on the respective country.
The happenings in Latin America particularly, with El Salvador having passed a bill that makes Bitcoin legal tender and requires stores to provide Bitcoin acceptance, is guiding the future of BTMs (Bitcoin ATMs) across the region and the globe. Countries with large unbanked populations and high remittance shares through workers abroad represent a strong opportunity for the adoption of crypto and BTMs. Remittances from the U.S. to LATAM and the Caribbean reached over USD100 billion in 2019, not to mention Asia, Africa and Europe. So this is one giant experiment again, which will pave the way to mainstream adoption as well as central bank adoption for Bitcoin. It will be exciting to watch.
Some Salvadorans and industries across the globe have voiced their concern about the development. Some criticism has emerged around the desire and the wish of some Salvadorans to become better educated. They felt they did not fully understand the precise structure of the bill, the events to be expected and the impact of this innovation on them. Apart from that, there is always some fear that is connected with progress, particularly in times of even more general uncertainty. This is just normal human behaviour and should not be overemphasized.
We already see that further countries are planning to propose Bitcoin Bills, like Paraguay, Honduras, Venezuela and Argentina are countries that already have heavy crypto adoption and would be likely runner ups on El Salvador. The use case of El Salvador is though specific in the sense that El Salvador uses the US dollar as their currency and will be significantly punished by the money printing of the Federal Reserve. It could well be that we see further of those countries adopting Bitcoin for identical reasons as El Salvador.
This is a small step for Bitcoin but a huge step for the industry. This was originally expected to happen towards the end of the year, now that this has made news for quite some time and the fact that many other countries are actively looking at similar scenarios, we expect further news until the end of this year. This in addition to the earnings calls of the S&P 500, which may surprise the public, should support the price discovery we expect to happen for the later part of the rest of this year.
Opinion editorial by Sebastian Markowsky, the CSO of Coinsource.