El Salvador’s Bitcoin Experiment Will Change Crypto Forever

What can a small country like El Salvador do for the Bitcoin and crypto markets?

We are all wondering on the first day that the popular cryptocurrency was accepted as fiat currency in El Salvador, especially after Bitcoin lost its $ 400 billion market value on Tuesday.

You may not think of Central America as a hotbed of financial innovation. But in many ways it’s small.

This may be the beginning of a financial experiment that will change the way money works around the world.

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Problems of countries that depend on the US dollar

Central American countries have always had volatile currencies. As a result, the two gave up control of the currency and started using the US dollar.

It brings stability, but it also brings many other problems, as monetary policy is no longer in your control.

Federal Reserve Board Chair Jerome Powell sets interest rates in a way that benefits the US economy. He has the dual mission of maximum employment and minimum inflation in the United States. He doesn’t care about El Salvador, Ecuador, or Panama. El Salvador’s unemployment is not important to him.

Therefore, a country that uses a foreign currency as its legal tender relinquishes its power to another country. It solves the big problem, the immediate problem of currency instability.

I am currently in Peru, further south of Central America. But I know one or two things about currency instability. The currency here, Peruvian Sol, was $ 3 before the COVID hit. And now it’s about $ 4. So it fell a lot.

That’s not too bad for me, as my dollar is far ahead here now. But that is bad for the stability of this country.

El Salvador Bitcoin

The problem with Bitcoin is that it is very unstable. The price varies greatly from day to day. That’s why Bitcoin as the legal tender of El Salvador is an interesting proposal.

I don’t know how well this works in a small country in Central America. Sophisticated financial systems have problems implementing cryptocurrencies.This will be difficult Switzerland To manage, to yell.

Imagine a local gas station owner trying to understand: Oh, let me check the internet. Oh, this is the current Bitcoin price. But if you ask me after 5 minutes, it will probably be a different price. So you should hurry up and pump up the gas now. “

How do you hedge it? Yes, there are Bitcoin futures, but not the average person on the street can do it.

This will be an interesting experiment. Let’s see what happens.

But this is a big problem — not only for Bitcoin, but also for common cryptocurrencies. This indicates that the asset is mature. The sovereign state has chosen to use it as legal tender. This is a big step forward and brings great credibility to Bitcoin.

The question is, what is the next step?

click here look Investing with Charles See what Matt and I think this means for the future of Bitcoin and other cryptocurrencies. We will touch on some of the pitfalls that El Salvador may face and how other parts of the world may respond.

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Co-editor, Green Zone Fortune

Charles Size More Is a co-editor of Green Zone Fortune Specializes in income and retirement topics. He is also a frequent guest on CNBC, Bloomberg and Fox Business.