Cryptocurrencies are still persona non grata in most countries, and, nevertheless, some countries are interested in them and give digital assets official status. For example, El Salvador is the first country in the world to legalize Bitcoin as a means of payment. How will this affect the future fate of cryptocurrencies and their market rate?
Pioneer country
Since their inception, cryptocurrencies have been persecuted and have been in almost a legal vacuum, since their legislative status was not clearly defined, and they were often perceived only as a tool for scammers.
However, over time, it became clear that digital currencies have gained a foothold in the global financial market. This year, the small Latin American country of El Salvador made a real revolution. It was the first country in the world to legalize Bitcoin as a means of payment. This created a sensation in the market and the Bitcoin rate immediately jumped by 16%.
Illustration: a jump in the Bitcoin rate after it was recognized as a means of payment in El Salvador
In addition, the government of El Salvador will create an official crypto wallet for storing bitcoins worth $150 million. This is necessary to be able to quickly convert Bitcoin into US dollars. Now prices for goods and services in El Salvador can be set not only in fiat money, but also in cryptocurrency, and taxes can be paid in it.
Later, the country's authorities promised to distribute $30 in bitcoins to the population in order to make it more popular among Salvadorans. Market participants had mixed reactions to El Salvador's decision on Bitcoin. Analysts at the American investment bank JPMorgan fear that the legalization of Bitcoin will negatively affect the state of the country’s economy, since this cryptocurrency is not liquid enough and is very volatile. However, many experts argue that such a decision by the El Salvador authorities will become an example for other countries and will have a positive impact on cryptocurrency rates.
The example is contagious
Following El Salvador, other Latin American countries have become interested in legalizing Bitcoin. It has already been proposed in Paraguay to recognize this cryptocurrency as a legal means of payment.
The bill submitted for discussion in parliament proposes to regulate the mining and trading of digital currencies, and also concerns taxation and the creation of a reserve crypto fund following the example of the Salvadoran.. The bill obliges cryptocurrency firms to register with the relevant authorities in Paraguay.
The bill submitted to parliament did not have a significant impact on the Bitcoin rate - the cryptocurrency continued to fluctuate sideways. However, if Bitcoin is legalized in Paraguay, this will push the rate up.
Illustration: Bitcoin dynamics after the bill was introduced in the Paraguayan Parliament
Conservative European approach
So far Giving the status of a means of payment to cryptocurrencies is only talked about in Latin America. However, in some countries in Europe and Asia these assets feel free. For example, in Estonia, financial companies providing cryptocurrency exchange and storage services are subject to the same requirements as any other financial institution that deals with traditional money. No special legislation regulating the operation of the crypto market has been introduced in Estonia.
At the same time, Estonia has strict requirements: the market must be legal and transparent - special licenses are issued for this. This approach attracts crypto companies to this jurisdiction and indicates that even fairly conservative European countries regard the cryptocurrency market as a full-fledged segment of the financial sector.
What does this mean for cryptocurrencies?
The fact that more and more countries look favorably on digital currencies is a positive signal for the crypto market. We can expect that other countries will soon follow El Salvador's example. Perhaps these will not be the countries of Europe and the USA, but less significant states, and, nevertheless, this is a favorable trend. Obtaining official status for cryptocurrencies helps to increase investor confidence, which leads to an increase in their market price.
Author: Dmitry Noskov is an expert at StormGain, a platform for trading, purchasing and storing cryptocurrency
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