Fitch Ratings warns of this downside of bitcoin (BTC) implementation in el Salvador

The Fitch Ratings agency has joined a long line of opposition to el Salvador’s legal tender tool in bitcoin. The Global Ratings agency warned the country of significant risks following the release of BTC. Fitch Ratings claims the legal BTC payment facility will result in a negative credit for local insurance companies. This means that gains can quickly translate into losses, and vice versa.

Accepting BTC can lead to negative credit
The agency highlights the uncertainty of El Salvador’s plans to implement BTC in traditional Sundays. He said the lack of clarity in policy development in the country, coupled with the high volatility of cryptography, could have unintended consequences, especially for insurers.

Fitch Ratings in a press statement,” el Salvador’s bitcoin as a legal tender, which determines the final legislation, currency volatility and earnings and a higher risk of additional regulatory and operational risks due to the newly created local currency is likely to create a negative is exposed to credit for insurance companies.”

Insurers turn BTC into US dollars, not later
There is no practical example of Bitcoin legal Bidding Practice. After that, it will only increase doubts about making bitcoin a functioning currency in the country. Fitch argues that after the implementation of the legal BTC tender, there is a high probability of a major failure regardless of the government’s efforts.

According to Fitch, if the government allows bitcoin to pay premiums, insurers would prefer to convert bitcoin assets into U.S. dollars immediately to avoid the risk of volatility. However, the timing of the conversion will depend on whether the regulatory and operational framework will allow BTC to convert into US dollars immediately. The policy structure remains unclear to date.

“The risks of using Bitcoin depend decisively on the degree of acceptance among policyholders. Insurers will convert bitcoin into US dollars as soon as possible to limit exchange rate risks if policyholders decide to use it to pay premiums…bitcoin-owning insurers

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