Cryptocurrencies buoyed by El Salvador’s adoption of Bitcoin
While investors celebrated the move, it was met with criticism by the International Monetary Fund (IMF), which foresees economic and legal issues down the road.
- Bitcoin (BTC) price skyrocketed to a weekly high of US$38,201 on Thursday (10 June 2021)
- The rally came after El Salvador became the first country in the world to adopt BTC as a legal tender
- This means prices can now be displayed in bitcoin terms, among other uses
- The IMF, however, foresees a number of macroeconomic, financial and legal issues with the move
- Other cryptocurrencies, including Ethereum (Ether) and Litecoin (LTC) were also boosted by the announcement
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Why is BTC rising?
Bitcoin burgeoned 22% on Thursday, a day after El Salvador passed a law that recognises the asset as a legal tender.
In doing so, El Salvador became the first country in the world to adopt the cryptocurrency as a legal mode of payment.
‘The purpose of this law is to regulate bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out,’ the legislation states.
This means prices can now be displayed in bitcoin terms, tax contributions can be paid using BTC, and exchanges in bitcoin will no longer be subject to capital gains tax.
Although El Salvador’s President Nayib Bukele sees benefits in adopting the digital currency – including helping overseas Salvadorans to send remittances back home, the International Monetary Fund (IMF) envisions potential issues arising from the move.
‘Adoption of bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis,’ IMF spokesperson Gerry Rice said during a press briefing.
‘We are following developments closely, and we'll continue our consultations with the authorities.’
Following the announcement, BTC steadily climbed to a high of US$38,201. Other cryptocurrencies like ETH, LTC and Cardano (ADA) were boosted as well.
Bitcoin's price has since readjusted back to US$37,000 as at 17:00 SGT on Friday (11 June 2021).
Long-time investors unfazed by most recent sell-down
Earlier this week, BTC’s price sunk to a two-week low of US$31,277, after US investigators said they seized US$2.3 million worth of bitcoin paid as ransom to DarkSide, the cybercrime gang that last month hacked Colonial Pipeline, the country’s largest refined oil pipeline system.
The other digital currencies also lost over 17% of their valuations between Monday (07 June 2021) and Wednesday (09 June 2021).
Despite the sell-off, some analysts remained unfazed, with Katie Stockton of Fairlead Strategies positing that BTC’s latest decline is ‘not a decisive breakdown’.
Stockton clarified that ‘oversold conditions are in place from short- and intermediate-term perspectives’, which gives bitcoin ‘a better chance to find its footing’.
‘Short-term momentum has deteriorated, but not to the degree with which we have a “sell” signal in the daily MACD,’ she was quoted as saying on Forbes.
Meanwhile, long-time crypto investor Mike Novogratz, who has been dubbed the ‘Warren Buffett of crypto’, believes that the market is currently in a period where it is ‘waiting for a new narrative to arrive that brings the next wave of money’.
He sees the Securities and Exchange Commission’s approval of a bitcoin ETF and the surge of capital as a result of more people buying into options to earn yields on digital coins as potential longer term price catalysts for the crypto market.
Bitcoin is trading 40% below its year to date-high of US$64,830 achieved in April 2021.
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