- Fitch Ratings highlighted that there are certain risks associated with the El Salvador Bitcoin legislation.
- The credit rating agency suggested that firms would either need to hold their BTC or quickly sell the digital asset to avoid price risk.
- Fitch further said that the move to adopt Bitcoin as legal tender was “unnecessarily rushed.”
While El Salvador’s move to make Bitcoin as legal tender in the country has attracted mass amounts of attention, concerns also arose. Fitch Ratings has also joined the International Monetary Fund (IMF) in raising concerns over possible consequences of the new legislation.
Financial firms would face BTC volatility risks
The President of El Salvador Nayib Bukele made the announcement that the country would be adopting the leading cryptocurrency as legal tender recently, marking a watershed moment for the new asset class.
However, protests, lawsuits and criticism followed after the decision was made, including El Salvador’s opposition party that sued the government over the new legislation.
Fitch Ratings suggests that there could be negative consequences since it introduced Bitcoin as legal tender, highlighting the financial and insurance sector in particular. The new law would force these institutions to keep their BTC or sell their cryptocurrencies to avoid price risk.
Bitcoin is set to become legal tender in the country on September 7, and exchange-rate volatility remains a risk factor for the sovereign. Fitch believes that the process to adopt the leading digital asset is “unnecessarily rushed,” leaving financial firms little time to adapt.
The IMF also expressed concern regarding digital assets, stating that the new asset class could pose significant risks, and effective regulatory measures must be put in place when dealing with cryptocurrencies.
According to IMF spokesperson Gerry Rice, the adoption of Bitcoin could raise a number of macroeconomic issues. Bukele responded that he would try to explain that the move to make the bellwether cryptocurrency a legal tender would not change their macroeconomics.
Rating agency Moody’s Investors Service downgraded the Salvadoran government’s rating as it believes that there could be increased uncertainty regarding the potential fresh round of financing from the IMF after adopting Bitcoin as legal tender.
Moody’s view is that the financial outlook for El Salvador remains vulnerable and susceptible to financing shocks. Should the country see limited availability of funding alternatives, Moody’s added that the sovereign would continue to face liquidity pressures going forward.
Bitcoin price to retest reliability of support
Bitcoin price is witnessing a minor pullback as it retests a crucial line of support at the 200-day Simple Moving Average (SMA) on the daily chart.
Bitcoin price must close above the aforementioned support at $45,592 for BTC to have any chance of continuing its rally.
However, should selling pressure arise and if the leading cryptocurrency slices below this level, the 20-day SMA will emerge as the next line of defense at $43,430, before the 38.2% Fibonacci extension level at $42,635.
BTC/USDT daily chart
On the upside, if Bitcoin price is able to sustain trading above the 200-day SMA, the next hurdle for BTC is at the 50% Fibonacci extension level at $46,901 before reaching the diagonal trend line, which coincides with the 61.8% Fibonacci extension level at $51,167.
The next few days are crucial for investors to take note of as a slight move in either direction may paint a largely different picture for the outlook of BTC.
Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer. Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Recommended Content
Editors’ Picks
Is Altcoin Season here as Bitcoin reaches a new all-time high?
Bitcoin reaches a new all-time high of $98,384 on Thursday, with altcoins following the suit. Reports highlight that the recent surge in altcoins was fueled by the victory of crypto-friendly candidate Donal Trump in the US presidential election.
Shanghai court confirms legal recognition of crypto ownership
A Shanghai court has confirmed that owning digital assets, including Bitcoin, is legal under Chinese law. Judge Sun Jie of the Shanghai Songjiang People’s Court shared this opinion through the WeChat account of the Shanghai High People’s Court.
BTC hits an all-time high above $97,850, inches away from the $100K mark
Bitcoin hit a new all-time high of $97,852 on Thursday, and the technical outlook suggests a possible continuation of the rally to $100,000. BTC futures have surged past the $100,000 price mark on Deribit, and Lookonchain data shows whales are accumulating.
Shiba Inu holders withdraw 1.67 trillion SHIB tokens from exchange
Shiba Inu trades slightly higher, around $0.000024, on Thursday after declining more than 5% the previous week. SHIB’s on-chain metrics project a bullish outlook as holders accumulate recent dips, and dormant wallets are on the move, all pointing to a recovery in the cards.
Bitcoin: New high of $100K or correction to $78K?
Bitcoin surged to a new all-time high of $93,265 in the first half of the week, followed by a slight decline in the latter half. Reports highlight that Bitcoin’s current level is still not overvalued and could target levels above $100,000 in the coming weeks.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.