El Salvador is betting that this week’s pioneering adoption of Bitcoin will spur its economy, especially one of its most crucial sources of revenue: money sent home by Salvadorans in the United States.
A fervent proponent of the cryptocurrency, President Nayib Bukele has asked the more than 2 million Salvadorans who live overseas to send their remittances in Bitcoin, arguing it will be cheaper than transferring dollars. He also says it will stimulate foreign investment.
“It will be a great benefit for our people,” he has written in Twitter.
But both those at home and abroad are uncertain if the plan, which takes effect Tuesday, will work as intended. Some say the system is too complicated and opaque. Others worry about the way Bitcoin values can rise and fall sharply overnight — potentially giving recipients a windfall or a loss.
Looking on the bright side is William Justo, a 44-year-old Salvadoran who has lived in Chicago since 1986.
“Digital currency offers the opportunity of having access to something similar to a bank and making money when the currency goes up. Even farmers will have access to all of that,” said Justo, who sends remittances every week to two children, his wife and grandmother.
“It will be something very good for the economy,” said Justo, who says he may send bitcoins now instead of dollars.
Arnolfo Diaz, in Maryland, thinks differently.
“Old people and farmers, which are many of the Salvadorans who live here (in the United States), are not up with technological change,” said the 58-year-old. “It’s going to be confusing, complex for them”.
Bitcoin, an alternative to government-backed money, exists only in computer circuits and memory. It’s based on data-scrambling cryptography — thus the term “cryptocurrency” — lots of processing power and a distributed global ledger called a blockchain, which records all transactions.
No central bank or other institution has any say in its value, which is set entirely by people trading Bitcoin. That independence and secrecy have made it a favorite of people suspicious of governments, as well as criminals trying to hide their transactions.
Other countries have dabbled in cryptocurrencies, but none has gone so far as El Salvador.
Starting Tuesday, all businesses will have to accept payments in Bitcoin, except those lacking the technology to do so, according to a law approved by the congress, which is controlled by Bukele’s New Ideas party.
The U.S. dollar, however, will remain the country’s main currency and no one will be forced to pay in Bitcoin.
The government is using a digital wallet app called Chivo that can be used for payments and remittances in Bitcoin and Bukele has promised that Salvadoran citizens who download it and sign up will receive receive $30 worth of bitcoins in credit.
The legislature has allocated $150 million as a trust fund to get the system established.
Some 200 kiosks will be set up to let people make deposits — or withdraw their money in dollars.
“The use of the Chivo wallet won’t cost anything,” Bukele has said on his Twitter account
Bukele argues Bitcoin will facilitate remittances because people don’t need to deal with the formal financial system and won’t have to pay fees to send money home — though David Gerard, author of “Attack of the 50 Foot Blockchain,” said he doesn’t think that’s a big issue since El Salvador’s use of the dollar means there’s no need to convert currencies and fees are already low.
He also said the country doesn’t yet have an infrastructure — things like customer support — ready for the shift.
“I don’t know what will happen on Tuesday but it won’t be a working system that goes smoothly and does everything they advertised for it,” Gerard said. “Even if it was, it would really have to prove itself, show it can really work with no fees”.
Salvadorans appear skeptical as well. Face-to-face opinion surveys by three well-known local pollsters in recent weeks all found opposition to the plan, ranging from a slight majority to about two-thirds rejecting use of Bitcoin as legal currency.
In San Salvador, bank employee Marina Escalante, 39, said she will download the application but isn’t sure how much she’ll use it.
“I am going to download the application to get the $30 in Bitcoin, but I don’t know if I will continue using it,” she said.
Some immigrants are worried that they would have to enter personal information into the app. Others complain there’s a lack of information about the system.
Díaz, the Salvadoran in Maryland, still has many questions.
“Do I need to have cryptocurrency to send remittances or just download the application?” he asked.
The volatility of cryptocurrency also worries him. A full bitcoin was worth about $65,000 in April. Two months later, it fell to half that. It’s now up around $50,000. The government expects people to make millions of transactions in tiny fractions of each coin.
“Bitcoin goes up, goes down. Then how is that going to affect our people?” asked Diaz, who works at a union for construction workers and sometimes sends remittances to his mother-in-law, other relatives and friends.
Remittances are key to the Salvadoran economy: They represent about a quarter of the country’s gross domestic product and support nearly a fifth of El Salvador’s households, according to The United Nations Economic Commission for Latin America and the Caribbean. Much of that money goes to basic needs like food, health and housing.
In 2020, El Salvador received nearly $5.9 billion in remittances from abroad — the vast majority of it from the U.S., according to the Central Reserve Bank of El Salvador.
Bukele has said that Bitcoin will save Salvadorans $400 million annually in remittance fees.
Many experts, however, doubt the extent of those savings, saying companies now charge an average of $8 — about 2.6% — for every $300 sent through a well-functioning system that handles more than 1 million transactions a month.
Manuel Orozco, director of the Center for Migration and Economic Stabilization at Creative Associates International, noted that the government plan to run its own dollar-dispensing teller machines will have its own costs.
International agencies such as the World Bank so far have kept their distance.
“While the government did approach us for assistance on Bitcoin, this is not something the World Bank can support given the environmental and transparency shortcomings,” said a spokesperson who asked not to be identified according to the institution’s policies.
Bitcoin has also been criticized because of the huge amounts of energy it consumes as so-called “miners” use electricity to process the blockchain transactions in order to earn bitcoins themselves.
That doesn’t bother Justo, the Salvadoran in Chicago. He said he is not a supporter of Bukele, but thinks the Bitcoin law will be a success.
“It has the backing of the government so there is not much to worry about,” he said.
Cryptocurrencies reach post record inflow, rise of the Omicron asset
CoinShares revealed Monday a heavy institutional investor flow into cryptocurrency products and funds despite a substantial drop in the past weeks, as a new digital asset emerges to the scene, carrying the same title after the new coronavirus variant, the Omicron.
As of November 26th, digital assets’ total incursions into the cryptocurrency sector reached a whopping $9.5 billion, compared to 2020’s Bitcoin inflow of $6.7 billion, with a matter of one week reaching $306 million.
According to data from digital asset manager CoinShares, Bitcoin witnessed its heftiest inflow of $247 million after releasing another investment asset in Europe. During that time, European Investment management firm Invesco issued its bitcoin exchange product in the continent, according to media reports.
Concurrently, asset manager WisdomTree also registered a trio of cryptocurrency basket exchange-traded products (ETP) into the Swiss Stock Exchange (SIX) and Frankfurt-based Börse Xetra, as stated by CoinDesk.
In parallel, CoinShare also unveiled that cryptocurrency has attained global inflow tallying to $2.7 billion for 11 consecutive weeks. Last week, the world’s largest crypto asset, Bitcoin, endured a heavy price drop by 2.3 percent, following a 10.4 percent from a prior week.
Last Friday, Bitcoin endured another plunge of almost 9 percent as investors abandoned the decentralized currency with fear of heavy impact support by the emergence of a new COVID-19 variant, Omicron, with last value fluctuation rising to 2 percent, with Bitcoin value reaching $58.483.
However, the globally renowned asset quickly recovered from its demise, following global markets attaining a smoother and soother bearing in valuation on Monday.
“Inflation is skyrocketing, and people are searching for more alternatives for their money in the bank,” chief of cloud-based automated crypto trading bot Cryptohopper, Ruud Feltkamp, said in a statement.
“I don’t think it’ll take long until investors see this as a ‘cheap’ buying moment. We are still in the midst of the bull cycle, and I think rising inflation will lead to more money being allocated to stocks and crypto,” he further added.
Shortly after presenting itself to the investor registry, the value of the newly risen digital asset hit $688 from Friday till Monday, before witnessing a plunge of approximately 75 percent, CoinGecko revealed.
Omicron, defined as “a decentralized treasury-backed cryptocurrency protocol,” initiated trading at around $371, and by Thursday, it marked an estimated value of $65.
Last week, the World Health Organization branded the latest coronavirus variant Omicron, with an expanded list of countries broadcasting the hazardous intensity of it carrying “very high” worldwide threats of waves, even though scientists revealed that would take weeks to fully comprehend the severity of the variant spread on a global scale.
While the ambiguity of Omicron’s launch date lingers, data from GoinGecko demonstrated that the token emerged on the scene on November 8th, with a Telegram channel labeled OmicDAO was launched a day before.
Currently, there is no official and direct representative of the Omicron token.
U.S. federal agencies aim to clarify crypto legality
U.S. regulators uncovered their future plan to address the rise of cryptocurrency for the upcoming year, with focus directed at the “greater clarity” concerning the legality of decentralized transactions, reported by Bloomberg.
The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) unveiled their future scheme to address the uprise of cryptocurrency, placing the digital asset with utmost priority for 2022.
The plan could potentially focus on stablecoin issuance via loan collateral and the manifestation of cryptocurrency on enterprise balance sheets. The three federal entities aim to examine the needed means to employ bank capital and liquidity standards to U.S.-based banking organizations.
The shared roadmap has yet to be finalized, given that the agencies are looking into different issues to accommodate the market’s changes. It will adhere to crypto policy “sprints” to assist in structuring regulatory priorities for the upcoming year.
The OCC, the Reserve, and the FDIC’s goals are to determine any potential threats and establish the efficacy of current rules. While there is no certainty that the roadmap will create fundamental changes, however, one thing is certain though, it will not work in favor of holders of decentralized assets.
The American regulatory move on cryptocurrency will proceed with caution, with crypto users having to proceed with cautions and hold back on specific activities to adhere to the word of law.
Consortium of Japanese firms assesses digital currency for 2022 launch
A consortium of almost 70 Japanese firms revealed on Wednesday in a conference its plan to initiate an experimental phase of testing a yen-based digital currency to be ready for launch in early 2022.
Three of the country’s mega-banks have always shown intentions of joining on the decentralized currency, which will mainly be supported by bank deposits, while utilizing a known platform to hasten a transfer of massive funds and settlement between companies, including cutting costs.
The consortium will incorporate Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc, and Sumitomo Mitsui Financial Group Inc. Tmizhuhese companies have had meetings regularly for the past year to examine the required measures to create a widespread infrastructure for digital payments.
In parallel, Japan’s three mega-banks also represented their private digital payment systems but have failed to mirror the same effort provided by financial technology entities, such as Softbank Group-backed PayPay – the multinational conglomerate is not a part of the consortium.
“A digital currency system built on a bank deposit-backed common platform will fit the Central Bank Digital Currency (CBDC) that could be planned and implemented in Japan,” special advisor to DeCurret and former head of Japan’s Financial Service Agency, Toshihide Endo, said during Wednesday conference.
The Japanese consortium will also incorporate a multitude of lenders, including Japan Post Bank Co Ltd, brokerages and insurers, and non-financial companies, such as Nippon Telegraph Corp, Kansai Electric Power Co Inc, and East Japan Railway Co.
In addition, other companies will also investigate options to gauge a currency such as this, all while experimenting with different uses for the digital currency in various industries, from energy to retail.
From another aspect, the consortium’s approach to releasing its own plan to digital currency will most likely trickle down the Bank of Japan’s scheme of launching its own CBDC, with regulators revealing they are working in synchronization with the BOJ if a digital currency is to be issued.
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