For much of its life, Bitcoin (BTC) has been viewed mainly as a speculative financial instrument, but El Salvador’s dramatic move in making BTC a legal tender is a reminder that cryptocurrencies can play a role in uplifting the world’s less-well-off citizens.
Two surprising facts emerged on the global stage at the start of June: First, 70% of El Salvador’s population do not have bank accounts, and second, remittances — i.e., money sent home from workers abroad — are fueling El Salvador’s economy, accounting for an astonishing 23% of the gross domestic product.
In this regard, Chainalysis was prescient last year when it described the global remittance problem in a blog — perhaps even anticipating a move like El Salvador’s: “Given the importance of remittances in the region, Latin America is one place we would expect to see such activity.”
El Salvador’s president, Nayib Bukele, declared that as a result of the new law, “Bitcoin will have 10 million potential new users” in El Salvador, adding that BTC is the “fastest-growing way to transfer $6 billion a year in remittances.”
The new law was met with skepticism among some mainstream economists, however, who deemed it unworkable. Johns Hopkins University’s Steve Hanke went so far as to say that it could “completely collapse the [Salvadorian] economy.”
But within the cryptocurrency and blockchain community, the move was applauded. Sergey Nazarov, co-founder of Chainlink, commented to Cointelegraph, “The legalization of Bitcoin as a national currency is a uniquely significant event in the history of money, society and globalization,” while Wladimir van der Laan, a Bitcoin core developer and “maintainer,” told Cointelegraph that El Salvador’s action “is absolutely a milestone, also in the sense it is something never tried before. I hope it will be for the best.”
Eloisa Cadenas, co-founder of PXO Token — a stablecoin pegged to the Mexican peso — also underlined the new law’s importance. “It marks a different way of looking at Bitcoin and the crypto industry. For much of its history, Bitcoin has struggled against the notion that its principal use is to launder money or ‘commit fraud,’ with relatively little said about its positive qualities,” she told Cointelegraph. But here, “Bitcoin is helping people who really need it.”
But making Bitcoin legal tender — which means it can be used to pay taxes, discharge debts and buy goods in stores — carries certain risks. Eswar Prasad, a professor of economics at Cornell University and senior fellow at the Brookings Institution, told Cointelegraph:
“Relying on a cryptocurrency that has unstable value and high transaction costs as a nationally sanctioned medium of exchange seems an act of desperation. A stablecoin backed by a major reserve currency would be a better option for a country whose currency and central bank lack credibility.”
Prasad wasn’t ruling out all blockchain-related solutions with regard to cross-border payments, acknowledging that “new financial technologies that hold out the promise of reducing costs and frictions of international payments would certainly be a boon for poor countries that rely on remittances from their citizens working abroad,” including “blockchain technology and its variants,” but decentralized cryptocurrencies like Bitcoin “are unlikely to become the main vehicles for cheap, quick and efficient cross-border financial transfers.”
What is legal tender?
Legal tender is a somewhat archaic term and often misunderstood, and it can mean different things in different parts of the world. In the United States and the United Kingdom, for instance, retailers are not required by law to accept legal tender — i.e., the dollar and pound sterling, respectively — but El Salvador’s retailers must accept BTC for payment under the new law. As president Bukele explained, as reported by Reuters:
“If you go to a McDonald’s or whatever, they cannot say we’re not going to take your bitcoin, they have to take it by law because it’s a legal tender.”
Legal tender basically “means that a government has declared a type of money receivable for taxes, and it is legal to use the money in contracts and to denominate goods and services in it,” Franklin Noll, a monetary historian and the president of Noll Historical Consulting, told Cointelegraph.
A nation typically brings in a foreign currency as legal tender for three reasons, Noll continued, “The native currency is too volatile in value, there is a shortage of the native currency, or the native currency is not useful in foreign transactions or trade.”
But El Salvador has no currency of its own, it is “dollarized” — i.e., it uses the U.S. dollar for all transactions — so currency volatility or foreign trade is not an issue. “This suggests the problem is a shortage of cash” and the country’s lack of banking structure, speculated Noll, further adding:
“Probably, El Salvadoreans have been gravitating to Bitcoin for some time as an alternative currency, which ameliorated the cash/electronic cash shortage while providing for lower-cost remittances at the same time. I have to stress that I do not know this for certain.”
Is volatility still an issue?
But Bitcoin is notoriously volatile, and this could introduce some problems. People don’t want to spend BTC when its price is rising, and retailers don’t want to accept Bitcoin when its price is falling. For this reason, economist John Hawkins, writing in The Conversation, surmised that “making Bitcoin legal tender could help destabilise El Salvador’s economy,” adding, “Things would have been simpler if El Salvador had adopted a ‘stablecoin’ whose price is fixed at one US dollar.”
It may be difficult to find a workable exchange rate, too, Alistair Milne, crypto skeptic (not to be confused with Alistair Milne, a Bitcoin evangelist based in Atlanta, Georgia) and a financial economics professor at Loughborough University, told Cointelegraph.
If the law doesn’t require a particular exchange rate against the U.S. dollar, then, according to Milne, “firms will protect themselves against the risks of accepting BTC by setting a quite adverse exchange rate. […] So, technically, they accept BTC, but no one would actually pay with BTC.”
But if the law specifies a particular exchange rate, for example, “the average exchange rate over a period of, say, 10 minutes before the time of the transaction as obtained from the many standard crypto websites,” then “the costs and risk of exchange then fall on the firms receiving BTC” — though that might appeal to those receiving BTC as a remittance payment from overseas. Milne continued:
“Bottom line, even if the law is enforceable with a stated exchange rate favorable to the purchaser, I doubt even then that many transactions in El Salvador will take place in BTC.”
Which country could be next?
El Salvador is one of the few nations without its own sovereign currency and so has less to forfeit by making BTC legal tender, no loss of “seigniorage” — i.e., the profit made by a government by issuing currency, for example. So, maybe it won’t have many followers, but Nigel Green, CEO and founder of deVere Group, disagrees. “Where El Salvador has led, we can expect other developing countries to follow. This is because low-income countries have long suffered because their currencies are weak and extremely vulnerable to market changes and that triggers rampant inflation,” he said in a June 9 press release.
Will others follow? “Without a doubt,” answered Cadenas, especially those with emerging economies, though they are likely to wait for some first results out of El Salvador. “Nigeria could be the next,” though she would also like to see Mexico, her native country, commit to something similar “due to the amount of remittances entering the country.”
If remittances as a share of GDP were the only criteria, Honduras might also be a candidate. Like El Salvador, its remittances exceeded 20% of gross national product in 2019, according to Pew Research, “among the highest shares in the world.” Mexico, by comparison, had only a 3% GDP share, but its gross numbers are high, $42.9 billion in 2020, according to the World Bank, behind only China and India. Most Latin American remittances are sent from the United States.
Prasad, however, was dismissive of the notion that other nations might soon follow: “El Salvador’s adoption of Bitcoin is highly unlikely to set off a wave of the cryptocurrency’s adoption as national legal tender by other countries. The flaws and inefficiencies of decentralized cryptocurrencies are too great for them to become viable substitutes for fiat currencies issued by central banks.”
Noll, while doubtful that many other countries would adopt Bitcoin as legal tender, said that “crypto has opened up many options for smaller countries to pursue their own monetary agenda, one that is tailored to their needs.” He offered as examples the Bahamas’ Sand Dollar — the world’s first central bank digital currency — and the Marshall Islands’ blockchain-based currency, SOV. He added:
“There is no reason a country cannot establish their own legal tender stablecoin or adopt a pre-existing one. So, I would see El Salvador’s adoption of Bitcoin as part of a trend rather than a milestone.”
More Bitcoin adoption globally?
As noted, El Salvador’s president was projecting that Bitcoin could have 10 million new users as a result of the law — based on adding El Salvadorans working abroad to his nation’s 6.5 million population, one presumes.
Given that there are an estimated 71 million Bitcoin users worldwide — among 106 million global cryptocurrency users — according to a February 2021 Crypto.com report, that would mean 14% BTC adoption growth from just a single Central American country. What if some other Latin American countries with high remittance shares, including Mexico, were to follow? Would crypto adoption surge?
Related: Adopting the Bitcoin standard? El Salvador writes itself into history books
Chainlink’s Nazarov thinks just that, telling Cointelegraph, “Just like emerging markets leapfrogged past landlines straight to mobile phones, I believe that these markets’ new-found internet connectivity, combined with the internet native capabilities of Bitcoin, DeFi and smart contracts, makes them the perfect place for large-scale global adoption.” “This is just the beginning of Bitcoin, DeFi and smart contract adoption in emerging markets, and as the benefits of this historic decision are shown to be true, even more countries will follow El Salvador’s example,” he concluded.
Cadenas told Cointelegraph that Bitcoin is now evolving as a “common asset that is being used by all socioeconomic levels,” not just the wealthy, adding:
“It is wonderful to see that Bitcoin is helping people who really need it, that it is creating financial inclusion, and that it is not only to make money for the treasuries of companies.”
Price analysis 7/23: BTC, ETH, BNB, ADA, XRP, DOGE, DOT, UNI, BCH, LTC
Bitcoin payments for real estate gain traction as crypto holders seek monetization
Crypto investors are betting big on real estate this year as the cryptocurrency market continues to grow. New York Digital Investment Group (NYDIG) recently conducted a survey that found that 46 million Americans own Bitcoin, equating to 22% of all adults. While optimistic, some cryptocurrency investors have expressed concerns regarding the security, custody and volatility of digital assets.
For example, Nickel Digital Asset Management, a regulated European investment manager dedicated to the crypto market, surveyed institutional investors and wealth managers from the United States and Europe who collectively have $275 billion in assets under management. Findings show that 76% of these individuals are concerned about the security of their digital assets. The same percentage said this about the size of the market and liquidity, followed by 71% who see the regulatory environment for the crypto market as a major issue.
This in mind, many crypto holders have started investing Bitcoin (BTC) and other cryptocurrencies into less risky assets such as real estate. Ben Shaoul, managing partner of Magnum Real Estate Group, told Cointelegraph that the company has recently been receiving more requests to sell real estate to cryptocurrency holders. According to Shaoul, Magnum began conducting crypto for real estate transactions about three years ago:
“We hadn’t tackled this before since most real estate developers didn’t understand crypto paymements. But we understood what it meant and how we could structure a sale for cryptocurrency. With the help of our legal team, we figured out how to conduct crypto transactions with the consent of regulators. We first sold a few residential units and then we sold a retail condominium in New York about three years ago for cryptocurrency.”
Eric Hedvat, chief operating officer of Jet Real Estate and a special consultant for Magnum, further told Cointelegraph that given the fast-paced growth of today’s crypto market, BTC payments for real estate is more important than ever before since it offers crypto investors an opportunity to grow with cash flow: “The cryptocurrency market has created a vast network of new wealth that wants to find traditional assets to invest in like real estate. There also aren’t many commercial properties for sale to buy with Bitcoin.”
Specifically speaking, Shaoul noted that the income generated from the retail condominium building that Magnum sold for $15.3 million in BTC during 2019 is all credit. “M&T bank has been a tenant in this building since it was built. They are a multi-billion-dollar bank.” This is an important detail, as Shaoul further commented that individuals who have created new wealth with cryptocurrency don’t have a way to monetize it or create a steady income stream:
“This property has over a million dollars a year of free cash flow. This is a very attractive offering for someone sitting on wealth they’ve created in cryptocurrency. This gives them an opportunity to monetize and effectively collect a bond moving forward.”
This has especially become the case due to interest rates in the United States. To put this in perspective, a recent survey conducted by the Financial Times and the University of Chicago’s Booth School of Business found that elevated inflation may make the Federal Reserve raise U.S. interest rates at least twice by the end of 2023. “In an environment where interest rates are where they are now, you can’t monetize into cash and leave your money in the bank and convert,” Shaoul said, adding that as a result, Magnum has been seeing a lot of cash move out of both the crypto and equities markets into hard assets such as real estate.
Piper Moretti, CEO and founder of The Crypto Realty Group, told Cointelegraph that crypto for real estate transactions is indeed becoming more common. Moretti shared that her firm currently has real estate listings available for Bitcoin in Tulum, Uruguay, Puerto Rico and Costa Rica.
Although this is the case, Moretti mentioned that many buyers purchasing real estate with crypto are taking loans out against their cryptocurrency. “Because of capital gain issues and the belief that Bitcoin’s price will reach $100,000 by the end of this year, people are taking loans out against their crypto. This way, they can keep their crypto and still monetize,” she remarked.
Joseph Kelly, CEO of Unchained Capital — a Bitcoin financial services company — confirmed this, noting that the firm has seen about 30%–40% of its loan originations go toward real estate.
But cash is still king for sellers
While Bitcoin and other cryptocurrencies are being used to purchase real estate, it’s important to note that, oftentimes, sellers prefer cash to crypto when dealing with these transactions. Moretti explained, “If a seller receives multiple offers, 99% of the time they’re going to push the cash offers to the top of the pile, even if it’s a crypto conversion because more likely than not they will be receiving the cash at closing.”
To put this into perspective, Sonny Singh, chief commercial officer of BitPay — a Bitcoin payments processor — told Cointelegraph that BitPay has facilitated $100 million in real estate transactions in the past five years. Singh mentioned that crypto transactions can easily be converted to U.S. dollars:
“The first thing that needs to happen is for the title or escrow company to be on board with this process. Sellers can also use the companies BitPay already works with. Buyers can then pay in Bitcoin, and we exchange that to cash. The escrow company now gets the Bitcoin at a cash-pay spot rate immediately. The entire process takes one day, and there is a 1% fee to initiate the transaction.”
Although this is typically the case, Shaoul shared that Magnum keeps a percentage of cryptocurrency obtained through real estate transactions in the company’s treasury. “We keep a portion of this to maintain the same percentage of crypto we’ve been balancing for the last six to seven months.” In order to do this, Shaoul shared that the firm is working with the crypto investment company Galaxy Digital to help manage cryptocurrency gained from real estate transactions.
Are Bitcoin payments for real estate just hype?
While it’s certainly notable that crypto holders have been seeing more opportunities to purchase real estate with digital assets, some industry experts believe that this recent trend has become overhyped.
For instance, Natalia Karayaneva, CEO of Propy — a real estate transaction platform powered by blockchain technology — told Cointelegraph that many of the stories in the media today focus on crypto payments for real estate as if this is a new development. But to Karayaneva’s point, accepting crypto payments dates back to 2014, when BitPay helped facilitate the sale of a Lake Tahoe property that sold for $1.6 million in BTC. In 2014 , a tech entrepreneur also listed his Tiburon, California home for sale for $3.6 million, which was payable in Bitcoin.
Karayaneva believes that blockchain technology being leveraged to facilitate crypto-to-crypto transactions will be the real game-changer for the real estate industry. It is possible to close a real estate transaction entirely in Bitcoin, without any cash conversion involved. Karayaneva explained that conducting transactions this way saves time for both the buyer and seller:
“This saves up to 1% of exchange fees, and blockchain crypto transactions are 100% transparent and immutable. They also allow for smart contracts that let a user create, audit and authenticate documents from any point of the world, in real-time. This eliminates the need for middlemen and minimizes the risk of any payment disputes, as the transaction is completed only if all requirements are met.”
Karayaneva further mentioned that many escrow companies today still don’t want to be involved with crypto transactions, which is why a smart-contract framework is a more attractive option.
Moretti, however, begs to differ, noting that using a blockchain to conduct real estate transactions can be difficult since it doesn’t go through the normal escrow process. “I know this can be done, but it’s clunky. There are also good funds laws we adhere to in California, and it may be hard to get regulators on board with such a solution.”
While it’s too soon to tell whether blockchain technology will be the missing link for real estate transactions, it’s clear that more crypto holders are using Bitcoin to purchase properties today. “People are looking to move unstable assets to a stable asset. And what’s more stable than real estate?” Singh remarked.
$60K is now more likely for Bitcoin than $20K, Bloomberg’s senior strategist asserts
Bitcoin (BTC) has better probability of recovering back to $60,000 than to break below its current support level of $30,000 and target $20,000, believes Mike McGlone, senior commodity strategist at Bloomberg Intelligence.
A screenshot from McGlone’s latest analysis on the flagship cryptocurrency, first shared by Bloomberg’s senior ETF analyst, Eric Balchunas, shows him comparing Bitcoin’s ongoing price action with the “too-cold” period of the 2018-19 trading session.
In detail, the BTC/USD exchange rate entered a prolonged consolidation period near $4,000 following an 80%-plus crash in 2018, but a sudden run-up in 2019 sent its prices to as high as $14,000 on some exchanges.
McGlone, who’s known for his previous bullish calls on Bitcoin, noted that BTC, which has been consolidating near $30,000 since May 2021, could post a similarly surprising rally while aiming to hit a refreshed resistance target near $60,000.
“The more tactical-trading-oriented bears seem to proliferate when Bitcoin sustains at about 30% threshold below its 20-week moving average, allowing the buy-and-hold types time to accumulate,” the strategist wrote.
The moving average trio
Bitcoin’s bearish and bullish cycles appear to wobble around three key moving average indicators. They are the 20-week exponential moving average (20-week EMA; the green wave), which serves as interim support/resistance, the 50-week simple moving average (50-week SMA; the blue wave), and the 200-week simple moving average (20-week SMA; the orange wave).
During bull trends, Bitcoin prices typically stay above the three moving averages. Meanwhile, bear trends see the cryptocurrency prices closing below the 20-week EMA and the 50-week SMA, as shown in the chart above.
The 200-week SMA typically serves as the last line of defense in a bear market. So far, Bitcoin has bottomed out twice near the orange wave, each time sending the prices explosively higher. For instance, a take-off from the 200-week SMA in 2018 drove the Bitcoin prices to almost $14,000.
Similarly, the wave support capped the cryptocurrency’s downside attempts during the Covid-19-led crash in March 2020. Later, the price bounced from as low as $3,858 to over $65,000.
Bitcoin is now in its third drop below this trendline since 2018. The cryptocurrency has broken below the 20-week SMA (near $39,000) and is now targeting 50-week SMA (circa $32,200) as support. If the old fractal is repeated, it should continue falling towards the 200-week SMA (around $14,000).
Except McGlone believes there could be an early rebound. As a bullish fundamental, the strategist pointed towards the recent China crypto ban.
Tether takes the cake
Beijing announced a complete ban on cryptocurrency operations in May 2021. The decision stonewalled the mining operations in the country, which were forced to either cease or move their base outside. Bitcoin prices fell sharply in response.
Nevertheless, McGlone highlighted China’s rejection of open-source software crypto-assets as a plateau in their economic ascent. In his tweet published Friday, the analyst attached an index showcasing booming volumes and capitalization of the U.S. dollar-backed digital assets, including Tether.
He then pitted the rising demand for digitized dollars against the Chinese yuan-to-dollar exchange rates, noting that the logarithmic scale of market cap fluctuations between the two fiats was below the baseline zero between 2018 and 2020. That means the yuan was depreciating against the dollar.
The scale just went back above zero, signaling an interim growth for yuan against the dollar. But its uptrend still appeared dwarfed before Tether whose market cap rose by more than 40% above baseline. McGlone noted:
China’s rejection of open-source software crypto-assets may mark a plateau in the country’s economic ascent, we believe while extolling the value of the U.S. dollar and Bitcoin.
Additionally, Petr Kozyakov, co-founder and CEO at the global payment network Mercuryo, noted that while the U.S. government has not launched a central bank-backed digital dollar officially like China, the availability of many other alternatives, including USDT, USDC, and BUSD, could pose challenge to CCP-controlled digital yuan.
“These cryptocurrencies are pegged 1:1 against the U.S. dollar and as shown in the chart McGlone shared, the dollar is leading the digital rise over the Chinese Yuan,” Kozyakov said.
“While China’s crackdown has had an impact on Bitcoin’s price as it hovers above $30K on 23rd June, fundamentals have improved vastly since 2018 due to institutional FOMO […] Bitcoin should recover to $50K by the turn of the year.”
The Chinese economy will keep growing
However, rejecting McGlone’s take, Yuriy Mazur of CEX.IO Broker noted that the Chinese economy should continue flourishing with or without cryptocurrencies, noting that it has nothing to do with the demand for digital assets.
Related: US-China trade war and its effect on cryptocurrencies
“The Chinese government is too smart to miss out on something the world deems valuable,” Mazur told Cointelegraph.
“So, expect them to take considerable measures to roll out a Yuan-backed cryptocurrency (in the future) that they have complete control over.”
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
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