IMF Report On El Salvador Is Positive… Except For Everything Bitcoin-Related

In a recent report, the IMF praises the way El Salvador handled the COVID-19 situation and announces their economy grew 10% in 2021. The International Monetary Fund also recognizes El Salvador’s government efforts to reduce crime, “diversify the energy matrix, foster economic diversification, and enhance financial inclusion.” However, when it comes to Bitcoin, the IMF is completely against it. As they should. Because Bitcoin renders them irrelevant.

But first, about the report titled “El Salvador: Staff Concluding Statement of the 2021 Article IV Mission

“A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement.”

Anyway, let’s go to the IMF’s wacky opinions about Bitcoin.

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What Does The IMF Think About Bitcoin As Legal Tender?

After praising El Salvador’s efforts to foster “financial inclusion and raise growth,” the IMF attacks the very tool that the country’s government is using to accomplish that.

“Given Bitcoin’s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability. Its use also gives rise to fiscal contingent liabilities. Because of those risks, Bitcoin should not be used as a legal tender. Staff recommends narrowing the scope of the Bitcoin law and urges strengthening the regulation and supervision of the new payment ecosystem.”

Translation: The IMF can’t even think of one good reason for Bitcoin not to be legal tender. One Bitcoin is one Bitcoin. The cryptocurrency’s volatility is intrinsically related to the assets we compare it with. In this case, the US Dollar. It’s also important to remember that Bitcoin is legal tender in El Salvador ALONGSIDE the US Dollar. If people don’t want volatility, they can easily exchange all of their money into US Dollars. 

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The IMF also conveniently ignores the fact that Bitcoin’s volatility can bring positive results for its users. And that their other option, the US Dollar, is going through an inflationary period like no other. Plus, when the US government prints more money, its citizens get certain benefits out of it. But El Salvador doesn’t. A Dollarized country that’s not in control of the money printer gets its purchasing power decreased by relentless inflation, but doesn’t get the airdrops and inorganic money artificially stimulating the economy.

Does The IMF Have Any Other Advice?

Of course, they do. After praising financial inclusion, the IMF recommends implementing the exact same measures that keep 70% of El Salvador’s population out of the financial system.

“Stronger regulation and oversight of the new payment ecosystem should be immediately implemented for consumer protection, anti-money laundering and counter financing of terrorism (AML/CFT), and risk management.”

Why are people in El Salvador unbanked? Do they think it’s by choice? Is the IMF unaware that their outdated and inefficient methods are causing the bottleneck? Bad actors have incentives to bypass AML and KYC procedures. They do it with ease. Normal people can’t produce all those documents. And for banks, the cost of processing all that data makes acquiring a new client expensive. There are no incentives to serve the lower-income population.

“Recently announced plans to use the proceeds of new sovereign bond issuances to invest in Bitcoin, and the implications of trading more broadly in Bitcoin, will require a very careful analysis of implications for, and potential risks to, financial stability.”

Translation: What’s all this about a Bitcoin City?!!!!! And they’re building a pet hospital?! ALERT! ALERT!

The US Pauses Relations With El Salvador

In semi-related news, Reuters informs that U.S. Chargé d’Affaires Jean Manes said in local TV that relationships between the two countries are on hold. “Obviously we’re on a bit of a pause because the government of El Salvador is not giving a signal that it has an interest in our relationship,” she said. “On behalf of the White House, the State Department, we’ve offered a bridge, and the (Salvadoran) government decided not to take it. As far as we’re concerned, we’re interested in having the best relationship with El Salvador.”

Sure, Manes. That sounds totally believable. Nothing suspicious here.

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Is Hyperinflation Inevitable? Jack Dorsey Says It’ll “Change Everything”

When Square’s boss Jack Dorsey talks about hyperinflation, the world listens. And Twitter reacts. Since so-called developed economies are now feeling the pain that inflation brings, the concept is in everyone’s mind. Every human has a front-row seat to witness the consequences of the United State’s relentless money printing. And, since the Dollar is still the reserve currency of the world,  they’re all feeling it too.

Related Reading | Bullish For Bitcoin: US Inflation Expectation Breaks Out From Decade Long Downtrend

This is Jack Dorsey’s tweet:

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As you can see, he doesn’t merely talk about inflation. He goes for “hyperinflation,” which caused adverse reactions in the replies and the quoted tweets. They accused him of fear-mongering and quoted official numbers at him. And the nay-sayers probably have a point here, because the US is far removed from the reality that word implies. However, one thing’s for sure: money printer goes brrrrrrrr… and it hasn’t stopped working since Covid hit.

Negative And Moderate Reactions To Jack Dorsey‘s Tweet

This is an example of an unnecessarily insulting response from a traditional finance person. 

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This man has obviously not done his homework regarding Bitcoin, so his argument is invalid. And doesn’t require a response. Plus, he’s being insulting to get attention, which he got. So, good for him and his dopamine levels. Let’s hope he has fun staying poor.

This is a Venezuelan economist with a moderate answer to Jack Dorsey.

Since Venezuelans have first-hand experience with hyperinflation, let’s take what he says into account. The US is just feeling what inflation does. So-called developing economies live with that concept on their backs every second of every day.

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Informative Reactions To Jack Dorsey’s Tweet

The Human Rights Foundation’s Alex Gladstein, a notorious Bitcoin maximalist, had this to say to Jack Dorsey.

He’s not lying. Hyperinflation is “already one of the world’s biggest humanitarian crises.” However, the US is far away from “Turkey, Nigeria, Ethiopia, Iran, Lebanon, Venezuela, Cuba”, and Sudan’s situation. And, since the Dollar is still the reserve currency of the world, they have a comfortable cushion to resist the constant money printing’s effects.

Serial entrepreneur and former Coinbase CTO, Balaji Srinivasan, answered Jack Dorsey with a fully-fledged idea. A “censorship-resistant inflation index.

In the project, he brings forth some hard truths:

“If inflation is a government-caused problem, we can’t necessarily rely on government statistics like the CPI to diagnose it or remediate it. Indeed, in places with high inflation, censorship and denial is the rule rather than the exception.”

If you are technically capable, there’s still time to send your proposal and earn “A $100k Prize for a Decentralized Inflation Dashboard.” Be aware that “if you use Chainlink’s oracle tech in your project, the best dashboard will be eligible to receive a $100k grant in LINK tokens.” Those tokens are in addition to the main prize.

Poor Understanding Of The Terminology

In a Twitter Spaces room specifically dedicated to Jack Dorsey’s tweet, notorious podcaster Preston Pysh concluded.

“I think people’s understanding of the terminology, deflation, inflation, is just grossly misunderstood. And so, when you say we’re going to have these deflationary events that are then going to lead to more QE, which is then going to result in more inflationary events. I completely agree with you, but we’re talking that there’s so much information loss in such a simple word as deflation and inflation. So the deflationary event is that this whole system is constructed as credit.”

When he says QE, Preston refers to Quantitative Easing, which Investopedia defines as:

 “A form of unconventional monetary policy in which a central bank purchases longer-term securities from the open market in order to increase the money supply and encourage lending and investment. Buying these securities adds new money to the economy, and also serves to lower interest rates by bidding up fixed-income securities.”

Related Reading | Jack Dorsey Plans to Build A Decentralized Exchange For Bitcoin

That being said, Preston asks:

“How many people in the US, or in the world, have that context when that’s not their expertise, right? They didn’t get a major in macroeconomics, or finance, or whatever. So, it’s just all buzzwords that people throw around. And, in the meantime, no one really even understands what those definitions even represent.”

For more information about inflation, check out the Bitcoinist Book Club analysis of Saifedean Ammous’ “The Bitcoin Standard.”

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Michael Saylor Brings The Thunder To Venezuelan Bitcoin-Only Podcast

If someone is doing his part, that’s Michael Saylor. The MicroStrategy CEO proved that he’s a stand-up guy by sharing the knowledge on a medium-sized podcast that’s usually in Spanish. Saylor went in on the topics du jour and revealed never-before-heard secrets. What does he think about El Salvador? What’s up with the infamous Mining Council? Is MicroStrategy in a vulnerable position? Keep reading for those answers and more.

Related Reading | Michael Saylor Clarifies His Company’s Bitcoin Strategy On US’s National TV

One of Michael Saylor’s first lines is, “I think that the next decade it’s going to be all about digital transformation of propertry.” After that, it’s gem after gem.

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What Does Michael Saylor Know About The Venezuela Situation?

The podcast is called “Satoshi En Venezuela.” The episode is titled “Bitcoin is Hope for Venezuela.” Since that name derives from a Michael Saylor quote, it figures that the first question was a why disguised as a how.

How is Bitcoin hope for Venezuela?

“Now you can put your property into a Bitcoin and put the Bitcoin on your mobile device. And I think the reason that that represents hope to the world is, eight billion people are going to be able to afford a mobile device. And 8 billion people can have property on the mobile device. Bitcoin is like a bank in cyberspace run by incorruptible software.” 

That sounds amazing, but, specifically speaking, why is Bitcoin good for Venezuela? 

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“Well, every economy works better if it has an incorruptible bank that allows everyone to store their monetary energy. It helps return rationality and long-term perspective. Hope is about believing that in a decade your life will be better than it is now.”

Beautiful. Michael Saylor also believes that, for this to work, “We have to give people property rights. And we’ve got to give them the ability to store their economic energy in something that they have control of.” By that, he means Bitcoin and only Bitcoin.

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Does Bitcoin’s Volatility Affect MicroStrategy? How Does Their Playbook Look Like?

His company, MicroStrategy, famously was the first to put Bitcoin on their balance sheet. And then, they kept buying and buying. “We’re basically converting our working capital from the weakest asset to the strongest asset,” Michale Saylor clarifies. Then, he gives you his strategy’s play by play: 

The way that we manage the volatility is, we make sure that we have enough Dollars to pay all of our bills for the next 12 months, based upon whatever volatility. So, we wouldn’t really ever need to liquidate any Bitcoin unless we had like a one in a hundred event. Then, we might sell a little bit in order to pay our bills, but that hasn’t happened before.”

He expects reasonable scenarios. Other currencies will print and print. There will only be 21 million bitcoin. Lots of businesses and people will integrate with the Bitcoin protocol. So, it’s not that risky. In a long time frame, it’s a “responsible business strategy.” It would be risky with a short time frame and a short-dated debt strategy.  

In short, MicroStrategy’s financial strategy protects them from volatility. If in 10 years Bitcoin is down and not up, then and only then they’ll be in trouble.

A Mining Council In An Open Network

The host, Bitcoin philosopher Criptobastardo, questions Michael Saylor with the basic objections that the Bitcoin community has with the Mining Council. Saylor answers:

“The council exists to gather information, to run surveys, and to educate. It’s not a government body. I agree that a governing council probably wouldn’t be the right thing. It’s really just a voluntary and open asociation of Bitcoin miners to gather information, share best practices and educate.”

According to him, someone has to respond to attacks. The Bitcoin community has to take control of the narrative, produce data, give info to decision-makers. “The people that need to know are Wallstreet investors, mainstream media journalists, and politicians.” These are powerful allies, and, “when they tell us that they’re under pressure from their constituency to get an answer, we should do our best to give them the answer.

Related Reading | Can Bears Force Michael Saylor To Sell His Bitcoin? Analyst Shared Bullish Theory

Is Michael Saylor Going To El Salvador?

According to the MicroStrategy CEO, one would need 21st-century infrastructure to solve a current problem. That’s what the Salvadoran government is trying to do with The Bitcoin Law. What will they get out of all of this? Well, according to Michael Saylor:

“I think there are two benefits you get when you adop the bitcoin standard if you’re a country. One benefit is the macroeconomic benefit. You end up with a treasury asset that is appreciating in value instead of depreciating in value. You put your entire economy on stronger bases.” 

The El Salvador experiment is crucial to mankind. If everything goes as planned in there, the economic growth they’ll have over the next few years will be unmatched. Michael Saylor continues and closes:

“The second benefit is a technology benefit. It’s possible to use the Bitcoin protocol, or in this case Lightning. The combination of Lightning and Bitcoin transactions in order to provide digital currency to every citizen of the country. So, two thirds of El Salvador dont have a bank. If I want to create a bank, I want to give them a mobile phone and a digital wallet. And a digital currency, which is the Dollar. On top of a digital asset, which is Bitcoin.”

That sounds like a tank to us.

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