Two Sides of the Same Bitcoin – Sovereign Adoption and Sovereign Bans

  • Sovereign bans and sovereign adoptions stem from the same reason.
  • People are turning to Bitcoin as they increasingly lose faith in fiat.
  • The central bank of Argentina has recently banned crypto transactions.

The urge for nation states to either adopt Bitcoin as legal tender or ban it comes from the same root cause - people are increasingly losing faith in their respective fiat currencies. The foundation of any medium of exchange is trust. It is not the metal, paper or other material that physically constitutes money that gives it value. People value fiat because they trust the governments that issue it. As that trust erodes, fiat becomes increasingly worthless. That trust has recently been eroded by high levels of inflation and general macroeconomic mismanagement. This decreasing trust is unlikely to reverse anytime soon, as central banks are leading us into a recession and a likely stagflationary environment. Therefore, people will increasingly flock to Bitcoin as their trusted safe-haven asset and we are likely to witness both increasing sovereign bans and adoptions. The former is a refusal to face facts, whereas the latter is embracing the future. They are both, however, moves by governments who have lost control over their own fiat currencies.

One recent example of this dynamic is Argentina. Argentina has been racked by decades of macroeconomic mismanagement. They have had to repeatedly seek help from the IMF. The latest inflation figures hit an annualized rate of 55.1% - the highest rate in two decades. As a result, Argentinians have flocked to Bitcoin and other cryptocurrencies. Argentina is thus one of the countries with the highest adoption of Bitcoin and cryptocurrencies in the world. That “lifeline”, however, is now being taken away from Argentinians, because the central bank of Argentina has announced a ban on crypto transactions following pressure from the IMF. Unironically, the Central Bank of Argentina justified the ban on crypto by saying that they posed systemic risks to the financial system. The real risk, of course, is the poor management of fiat.

Adopting Bitcoin as legal tender or banning it are both results of the public’s waning trust in fiat. As the world enters turbulent economic times with the risk of a global recession and stagflation looming, it is likely that this trust in fiat will keep eroding. This will result in more countries either adopting or trying to ban Bitcoin.

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Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.

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