Cryptocurrency in general and Bitcoin, in particular, have both had a bad week. After El Salvador finally made the move to allow Bitcoin to be used as legal tender within the country Bitcoin suddenly took a nosedive. The crypto standard had been trading well above $50,000 for weeks, but a combination of pressures in the middle of last week saw the coin tumble to under $43,000.
However, as we move into the middle of this week, Bitcoin does seem to be stabilizing–and even bouncing back. The coin is trading just over $46,000 as of the time of this writing, leading some bulls to suggest that a major rally could be on the way. Some experts have even gone as far as predicting that this is going to be the start of a historic run for Bitcoin, like Cathy Wood of ARK Invest.
Tenfold Increase in Five Years?
Wood told CNBC anchor Andrew Ross Sorkin during the SALT Conference on Monday that she thinks businesses should begin to diversify into Bitcoin. If many major investment firms allocate around 5% of their earnings to the popular cryptocurrency standard, Wood says, she would expect Bitcoin to reach astronomical heights.
Should this happen, Wood says, “we believe that the price will be tenfold of where it is today. So instead of $45,000, over $500,000.” Wood suggests that this increase could take place over a five-year period, which would suggest an unbelievable rally for the coin.
While on the topic of crypto, Wood also mentioned that ARK Invest was getting deeper into Ether following that coin’s 2.0 update. Ether’s update has many crypto bulls buzzing about the future, with Wood mentioning that it has her interested enough to drive her investing strategy to 60% Bitcoin and 40% Ether.
All of this, Wood says, goes hand-in-hand with some countries beginning to accept Bitcoin as legal tender. While El Salvador recently made the move to make Bitcoin a national currency, two other countries are reportedly considering the same move.
Ukraine and Panama
Two countries have recently started moving in the same direction as El Salvador. Panama, a country known for its extremely lax tax policies and loose implementation of international monetary law, has started the ball rolling on the process of making Bitcoin legal tender. On September 8, a bill titled “Crypto Law: Making Panama Compatible with the digital economy, blockchain, crypto assets, and the internet” was introduced to the Panamanian legislature.
That same day, Ukraine began making its own moves in regards to adopting crypto. The country has already passed a draft of a bill with a timetable that suggests cryptocurrency could become legal tender there as quickly as the start of 2022.
Experts think that many other countries in Central and South America could follow El Salvador’s lead and adopt Bitcoin as legal tender for a few reasons. For one, it’s a way to sidestep remittance fees; people can send money home from abroad with very few fees associated. Another reason for adoption is the high number of citizens in Central and South America who don’t have bank accounts.
And, critically, reliance on Bitcoin means that many countries could also break their reliance on the US dollar. Many governments throughout Central and South America might resent the US’s financial dominance in the Western Hemisphere and could be seeking to use Bitcoin as a decentralized alternative to the international banking structure.
Central Banks Sound Crypto Warning
While some bullish investors extoll crypto’s benefits and countries begin considering adopting the standard as legal tender, some analysts and central banks around the world are issuing dire warnings about adopting private money as a national currency.
Bitcoin is indeed decentralized, which means that nothing guarantees its value. It’s worth whatever investor sentiment says that it’s worth, nothing more. If the coin takes a bad spill one week, there are no central banks that act as stewards who can help rebuild the coin’s value. Countries that choose to throw all of their wealth behind Bitcoin will find themselves at the mercy of the cold calculations of the international crypto market.
Another issue that continues to present problems for crypto bulls is the problem of crime. Crypto is the perfect form of currency for organized crime: it’s untraceable, it easily slips across national borders, and its use is completely anonymous. The main flaw of all criminal organizations (the difficulty of moving large sums of money undetected) is essentially removed thanks to cryptocurrency.
Countries that adopt Bitcoin are playing with fire. However, there is pressure to adopt early for countries that want to reap the biggest benefits. After all, the sooner you buy in, the more you stand to gain if the coin really does see a tenfold increase in value over five years. The future of money could be digital, and that has central banks nervous.