Bitcoin Becomes Legal Tender As Inflation Persists

Will Nemirovsky -

El Salvador’s adoption of Bitcoin as legal tender marks one of the biggest milestones in Bitcoin’s history. Several other countries have indicated that they are considering similar adoption measures. The U.S. dollar is rapidly losing purchasing power as the government pushes additional spending packages.

El Salvador officially adopted Bitcoin as legal tender on June 8th. The decision was proposed by President Nayib Bukele and passed with 62 of 84 possible votes. Bukele stated that the decision “will bring financial inclusion, investment, tourism, innovation and economic development” to El Salvador. Bukele expects Bitcoin to be useful for remittances, representing 23% of the country’s GDP. All companies in the country will be required to accept Bitcoin within 90 days. El Salvador will facilitate the conversion of Bitcoin to dollars for any company which requests it. Residents will be able to use Bitcoin to pay their taxes. El Salvador plans to mine Bitcoin using geothermal energy from volcanoes. The adoption of Bitcoin may affect El Salvador’s ongoing funding discussion with the IMF.

Bitcoin Gains Traction Among Global and Domestic Legislators

Politicians from Argentina, Mexico, Panama, and Brazil publicly supported Bitcoin adoption and showed support for El Salvador’s decision to adopt Bitcoin as legal tender. Mexican senator Eduardo Murat Hinojosa is proposing a bill intended to further cryptocurrency adoption in the country. NFL player Russell Okung wrote an open letter to the Nigerian government urging them to adopt Bitcoin as an economic hedge against the instability of the naira. On June 10, The Texas Department of Banking published an industry notice stating that banks can provide cryptocurrency custody services to their clients. The department clarified that the Texas Finance Code had previously allowed this activity, but was making the statement to make the interpretation more explicit.

Spending Packages Progress As The Dollar Loses Value

The CPI is up 5% in the last year, marking the largest annual increase since the financial crisis of 2008. The core inflation rate is up 3.8%, reaching a growth rate unseen since 1992. At the same time, a bipartisan group of senators reached an agreement on a potential infrastructure bill, which would include $1.2 trillion in spending over the course of 8 years. It is unclear if this agreement will gain enough support to pass through the Senate. Separately, the Senate passed a $250 billion bill to fund technological innovation and compete with China’s increasing sphere of economic influence. Russia’s National Wealth Fund will eliminate dollars from its holdings in response to U.S. sanctions against Moscow. Before the decision, the fund held over $41 billion.

Major Companies Add Bitcoin Services To Their Roadmap

Interactive Brokers plans to offer cryptocurrency trading on its platform within the next couple of months. The company has 1.4 million user accounts and targets a more sophisticated segment of the market. State Street is establishing a digital division which “will support everything in crypto services that [it is] allowed to support from a regulatory perspective.” MicroStrategy’s bond offering to fund the purchase of Bitcoin was increased to $500 million after being significantly oversubscribed. The instrument will yield an annual interest rate of 6.125%. Amazon is expected to further its involvement in the blockchain space after posting a Blockchain Head of Product position. The U.S. government managed to recover a portion of Colonial Pipeline’s ransom payment, although the details of the operation are unclear. Elon Musk indicated that Tesla would begin accepting Bitcoin payments again once mining operations use renewable energy more consistently.

Market Recap

El Salvador’s recognition of Bitcoin as legal tender marked a significant step in Bitcoin’s global adoption progress. Other countries in the region have indicated that they are considering similar measures. The dollar is experiencing elevated levels of inflation, which are likely to be accelerated by additional spending measures. Major financial institutions continue integrating Bitcoin into their product offerings.