What Country is Next in Line to Adopt Bitcoin?

El Salvador’s Adoption of Bitcoin

What prompted El Salvador to adopt Bitcoin as legal tender? One could argue that a little experiment, known as Bitcoin Beach, was the provenance for this historic event. Bitcoin Beach is the name for a novel economic system taking place in the town of El Zonte, El Salvador where Bitcoin is the main form of currency.

Like many developing nations, El Salvador relies on the US dollar to act as their national currency. Given that El Salvador is a net importing country, they run the risk of a depleted money supply. Remittances from El Salvadoran workers abroad help keep the USD money supply steady, but face high remittance costs. Bitcoin offers freedom from these trappings of the US dollar, and more.

With El Salvador’s economic challenges in mind, Nayib Bukele, the president of El Salvador, observed the success of Bitcoin Beach. In a nutshell, he liked what he saw, then proposed a bill to make this a national level experiment. It’s a risk, but the bill passed and history was made. It’s been a mixed bag since El Salvador embraced Bitcoin but there’s plenty of time to perfect the technology.

Adoption vs. Legality vs. Legal Tender

There are three terms often used interchangeably that need distinguishing; adoption, legality and legal tender. Adoption is the rate at which the use of Bitcoin is growing within a country. This can and often does occur whether Bitcoin is legal or not. Legalization allows citizens to own Bitcoin without potential interference from the government. And legal tender status means that Bitcoin is an official currency. A government must accept an official currency from its citizens.

The jump from legality to becoming legal tender is subtle but significant. In the former, the government tolerates the existence of Bitcoin. In the latter, the government embraces Bitcoin and makes it fundamental to the functioning of their economy.

Countries Considering Bitcoin

I will be using the Chainalysis 2021 Global Crypto Adoption Index to help guage who will be next to declare Bitcoin as legal tender. The index scores countries on a scale from 0 to 1 based on their level of adoption. Scores are weighted based on the purchasing power parity per capita of each country and hinges on the following metrics; total crypto activity, trading activity of non-professionals, and P2P (peer-to-peer) exchange volume.

The index includes a list of 20 countries, of which seven are Asian countries, six are African, four are Latin American, two are European, and only one is North American. The majority of these countries are emerging economies likely due to the metric in this index for P2P transactions. P2P (transactions made between two individuals) are generally more prevalent and accessible in emerging markets. These economies generally rely more on remittances for support, and require value storage options to hedge against currency devaluation. Crypto is a prime solution to both these issues.

Asia (Especially Vietnam)

You may notice that Vietnam has an impressive score of 1 where the next 19 have scored within the 0.13-0.37 range. Apparently, this reflects a culture with a history of gambling and a lack of investment vehicles for their young, tech-savvy population. Bitrefill, a company that provides gift cards in exchange for crypto so people can “live on crypto”, is also prevalent.

Vietnam, however, along with the rest of Asia, has a history of legal rigidity. Vietnam, India, and Pakistan make up the top three countries in the list, but not one of these countries have made crypto legal or taken steps to regulate it.

Latin America

El Salvador has started what can be likened to FOMO in Latin America. Political figures in Paraguay, Brazil, Mexico, and Argentina have since been supportive and outspoken of Bitcoin on their twitter feeds. You will see these politicians post pictures of themselves with the Bitcoin lazer eyes to represent support for Bitcoin. Venezuela ranks highest in the index. As their economy has regressed, Bitcoin has started to fill gaps, but their government’s sentiment is difficult to gauge.

Overall political sentiment toward Bitcoin seems highest in Latin America. Paraguay’s attitude in their recent Bitcoin Bill looks promising, but Bitcoin as legal tender does not seem likely. Venezuela and Argentina have the highest rates of adoption and could look to Bitcoin to simplify their chronic hyperinflation.

Europe

Ukraine is number four on the index. Their high adoption rate seems to be due to citizens using crypto to combat inflation of the hryvnia and to hedge against a shaky banking infrastructure. Ukraine also recently legalized crypto and is taking steps to actively regulate. This could also be a move toward greater independence from the influence of Russia amidst the protracted Russo-Ukrainian war.

Africa

Africa is particularly well suited to the adoption of crypto given their large youth population and lack of banking infrastructure. Kenya and Nigeria are doing well to innovate within the crypto space but are hamstrung by governments that are hesitant to move forward with crypto. South Africa’s adoption rate is somewhat less, but they boast a large gross market for crypto. South Africa is also showing that their regulatory environment is ready to move forward.

Final Thoughts

It looks like Vietnam is leading the charge for Asia, it’s anyone’s guess for Latin America, Ukraine is leading for Europe, and Africa has a few promising candidates.

My gut tells me that the next country to adopt Bitcoin as legal tender would be similar to El Salvador. Similar in that they are a small, emerging economy with nothing to lose, so to speak. This points me toward a smaller African or Latin American economy. However, the high rate of adoption and promising political sentiment of Ukraine wins my reasoned bet for who is next in line to adopt Bitcoin as legal tender.