opinions of Some economists about bitcoin
No matter how strong the arguments are in favour, I consider that the reasons for avoiding it or proceeding with caution outweigh them. They are as follows:
The price in the last five years is still very high so that you would be buying very high with a longer perspective. During the five years ended May 19, 2021, bitcoin produced a staggering 7.876% return. It's not going to skyrocket to the same extent in the next five years as it has in recent years. I want to clarify that I know very well that I cannot predict the future of any investment. But according to my mathematical calculations, another performance like the last five years would bring the value of bitcoin to nearly $ 88 trillion in five years: more than four times the gross domestic product of the United States in 2020. That is not going to happen. . The time to get rich quickly on bitcoin is most likely over. Bitcoin has many competitors, some of which are more profitable. There are thousands of cryptocurrencies and no limitations on creating new ones. The "dogecoin" is said to have been created as a joke, but as of May 18, it is worth $ 43 billion. The value of the ethereum currency is approaching half the value of bitcoin and uses blockchain technology not only to maintain a decentralized payment network but also to store computer code that can be used to power financial contracts and applications—decentralized and tamper-proof. The US and other governments could crackdown on bitcoin. In the worst case, governments could effectively ban cryptocurrencies. By the way, they have already gained the attention of the IRS. The arguments about the dollar's devaluation and hyperinflation have been made for decades, but they have not yet been realized. I must confess that in 1980 I bought gold because I was sure that paper money would have very little value for all the money we were printing. But for decades, Japan has run deficits higher than the US and has struggled with deflation (the decline, not the rise in prices). Bitcoin could be more volatile than your stomach can handle. Every time the stock market crashes, I feel the pain of people describing what they lost. By comparison, bitcoin will make you think the stock market is stable.
Like many financial institutions, Bank of America (BofA) ensures more risks than potential benefits in adopting bitcoin as legal tender in El Salvador.
However, analysts at the bank said in a note last week that there could be several benefits. These include making it easier for migrants to send money to El Salvador; help digitize banking; and increase business with the United States.
«The market has been excessively pessimistic about it. It is overlooking any arguments in favour, even if those benefits are certainly more uncertain,” wrote analysts, including Latin American strategist Claudio Irigoyen.
Workers’ remittances could be cheaper.
Like many developing countries, remittance flows have substantial value to El Salvador’s economy. In this case, at least 24% of GDP, due to workers leaving the country and sending money home.
Therefore, bitcoin could benefit the economy by reducing the transaction costs of remittances to the Central American country, BofA said.
The average transaction cost of bank-based cross-border remittances is above 10%. But it could be a lot cheaper if bitcoin is used. However, bitcoin is very volatile, and transaction fees can vary.
Bitcoin May Help El Salvador’s Economy Digitize
Currently, more than 70% of adults in El Salvador do not have a bank account, BofA said. But bitcoin is a form of digital money that can be easy to use, for example, through mobile phone applications.
“For that reason, democratizing access to electronic payments via bitcoin has a progressive edge,” said BofA analysts.
Adoption could increase business with US companies.
The United States is one of the epicentres of cryptocurrencies. And El Salvador’s adoption of bitcoin could see US companies moving to the country to take advantage of the change and bring investment with them.
“There could be [foreign direct investment] from Strike (developer of the payment platform), bitcoin miners, ATM manufacturers, among other types of companies,” BofA said.
Bitcoin miners may be drawn to the geothermal energy of El Salvador’s volcanoes, for example. Yes, However, the overall costs of electricity are relatively high, making large-scale mining unlikely.
Recently, bitcoin in El Salvador has been adopted as a “legal tender” (legal tender). It is one of the first countries to take the step to promote the use of cryptocurrencies. Perhaps some Latin American economies could draw some lessons and learn from this particular case if they follow the news closely in the coming months.
Salvadoran remittances represent practically a fifth of the economy of their country. Now through digital wallets like Strike, migrant Salvadorans could reduce the use of traditional platforms like Western Union and Moneygram; and even saving on different types of standard financial charges in periodically sending money to their families in their country of origin.
We know that the high volatility of this cryptocurrency could be a point against when using this financial asset. With a simple tweet from a business tycoon or a comment from a digital influencer, the value of the cryptocurrency can be increased or decreased by thousands of dollars in a matter of hours.
We invite you to read: El Salvador will build infrastructure for the use of Bitcoin, announces Bukele.
Bitcoin in El Salvador, an issue of volatility
Fun facts about the cryptocurrency market’s volatility: By April 14, 2021, the price of 1 Bitcoin against the dollar was $ 64,600, but in mid-June, 1 Bitcoin is worth $ 40,000. In recent months, Bitcoin has corrected strongly, which has generated a lot of panic in the market. Bitcoin fell 53% from its all-time highs in a matter of days. Some blame Elon Musk, others that it is a bubble about to burst, and others see it as a healthy correction within the financial market.
When talking about bitcoin in El Salvador, it is important to note that more than half of the country’s inhabitants are not banked, and now, through a couple of Apps, the population can easily make cryptocurrency transfers without so much paperwork and banking complications.
Of course, the challenge now is to educate the population using these new technologies (cryptocurrencies, security keys, digital wallets, etc.).
In addition to all this, El Salvador has also announced its intention to mine bitcoins. This is the attraction of new investors and the generation of jobs. A great step to boost a new industry (Fintech) related to disruptive Blockchain technology.
President Bukele has opened the doors to a market that is just beginning to grow globally.
We invite you to read: President Bukele says that bitcoin in El Salvador will be optional.
Some economists could say that this “bituminizing” an economy is bad for the stability of the country due to issues such as its lack of regulation, manipulation, scams, environmental consequences, fiscal risks, economic sanctions for the country’s monetary disorders, for mention a few.
What is clear is that this topic is relatively new; there are no real experts today, and opinions are plentiful. We have nothing left but to wait and see how this story continues, which, for the moment, generates high expectations. It is worth noting that bitcoin in El Salvador is a great opportunity, containing risks and volatility. An additional financial asset that incorporates technology and is the standard-bearer for establishing a new financial system.