Bitcoin/cryptos: a new liberal litmus test

El Salvador’s 39-year-old president Nayib Bukele is living up to his millennial credentials with a ringing endorsement of cryptocurrencies. Bukele’s adoption of bitcoin as legal tender in El Salvador has the optimistic intention of improving financial inclusion and speeding up foreign exchange.

A thumbs up from a small, poor, crime-ridden state counts for little on its own. But it adds to the modest tally of states encouraging the use of cryptocurrencies as mediums of exchange. At the moment, bitcoin and its imitators are barely more than wildly fluctuating meme stocks. 

Supporters of cryptos are a formidable lobby group on social media. In the real world, their opponents are much more powerful. China has warned banks not to provide bitcoin services to its 1.4bn inhabitants. The crackdown coincided with the rollout of an official digital currency.

India, the second most populous nation, is reportedly considering the criminalisation of crypto ownership, trading and mining. Turkey announced in April it would ban cryptocurrencies as payment after the falling lira led locals to swap their currency for bitcoin crypto exchanges.

The correlation between cryptophobia and authoritarian leadership is glaring. The exception would appear to be the Philippines, a big destination for remittances that has given explicit approval for crypto exchanges.

Devolved Switzerland stands out among developed democracies in its enthusiasm for digital currencies. The Zug district announced last year that residents and companies could pay tax in bitcoin.

Most such nations are adopting a wait-and-see approach. Their recognition of cryptos as valid niche financial assets will depend on uptake. Meanwhile, they warn regularly about risks while inching towards regulatory supervision.

South Korea wants “know your client” (KYC) requirements for crypto exchanges. In the US, leading exchange Coinbase was permitted to list on the stock market.

The US Securities and Exchange Commission has not created rules specifically for cryptocurrencies. The UK’s Financial Conduct Authority appears to be delaying authorisation of crypto businesses for as long as it can.

Foot dragging is shrewd. The lower the value of cryptos, the less they matter. Bitcoin has slumped by a half since April.

Proposed uses for cryptos range from digital gold to weathervanes for speculative exuberance. Another emerges from a survey of official attitudes towards an asset with anti-establishment roots. Toleration — rather than Bukele’s boosterism — is a good litmus test of a nation’s liberalism.