Where bitcoin could become legal tender next: Grayscale CEO – Yahoo Finance - Newstrend Times

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Friday, September 10, 2021

Where bitcoin could become legal tender next: Grayscale CEO – Yahoo Finance

Cryptocurrency bulls are lauding the decision by El Salvador to become the first country to accept bitcoin as legal tender. And one bitcoin fund manager believes other countries in emerging markets around the world could possibly follow suit.

Michael Sonnenshein, CEO of Grayscale Investments, the world’s largest cryptocurrency fund manager by assets ($32 billion as of Sept. 3), spoke with Yahoo Finance Live and speculated where such countries could be located.

“When we think about where [increasing] adoption rates are taking place, they’re the highest in the emerging markets — in places like Africa, Southeast Asia, [and] parts of South America. So it would be tough to think about which other countries [besides El Salvador] where bitcoin could serve as legal tender,” he said.

El Salvador made the U.S. dollar its official currency in 2001, joining the ranks of seven similarly-situated countries — including Ecuador, Panama and the Republic of Zimbabwe. They don’t control their own monetary policy due to their dollar adoption. However, they are only exposed to inflation as it pertains to the U.S. dollar, which has avoided double-digit inflation since the 1970s.

El Salvador President Nayib Bukele promoted the drive toward a dual fiat-crypto national currency as a way to avoid hundreds of millions of dollars in fees incurred as the country’s expats remit payments to relatives and friends domestically. 

Such remittances reached a record $5.92 billion in 2020, or nearly one-quarter of the country’s gross domestic product. According to World Bank data, the average remittance fee from the U.S. to El Salvador was 2.91% in the fist quarter, which yields a conservative estimate of $172 million annually in fees. Bukele claims the savings will be higher, at $400 million annually. 

Comparing these fees to bitcoin transaction fees is tricky, as they are dependent on many variables, especially the traffic on the network. But this also means senders can simply wait out the high traffic periods and send later when fees are lower.

None of this addresses the program’s biggest concern — the now-infamous volatility of bitcoin, which regularly endures corrections of more than 30%, often topping 50%. That the value of a poorly-timed remittance could result in a loss of one-third or half or more in a short period of time may temper usage.

When El Salvador launched its bitcoin Chivo app on Tuesday, there were a few technical hiccups, which resulted in nothing less than a 19% drop in the price of bitcoin from the high of the day — perhaps demonstrating the fragility of the still up-and-coming asset class.

Sonnenshein commented, “I think the only criticism that’s fair of the El Salvador rollout at the moment is just that it happened quickly.”

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Jared Blikre is an anchor and reporter focused on the markets on Yahoo Finance Live. Follow him @SPYJared

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