For these reasons Mexico will not follow the route of El Salvador with bitcoin

Key facts:
  • According to a Mexican official BTC is not a reserve of value, nor a means of exchange.

  • Herrera Gutiérrez’s claims conflict with data released by researchers.

The Secretary of Finance and Public Credit, Arturo Herrera Gutiérrez, on Monday, June 28, made it clear that Mexico will not follow the route of El Salvador, which at the beginning of the month became the first country in the world to declare bitcoin as legal tender.

Herrera Gutiérrez, who is also a candidate to assume as governor of the Bank of Mexico (Banxico), said that a legal tender of a country must meet three characteristics. One of them is that it be a unit of measure, that it be a means of exchange and reserve of value. However, for the owner of the Treasury, cryptocurrencies such as bitcoin (BTC), ethers (ETH) and others, do not meet these characteristics.

“They can’t [las criptomonedas] to be considered legal tender because they are clearly not a reserve of value, they are only assets that are considered speculative because of their variations [de precios]”. He said so during the press conference on Mexico’s third intensified follow-up report to the Financial Action Task Force (FATF).

In addition, Herrera Gutiérrez believes that bitcoin or other cryptocurrencies cannot be considered as a means of exchange and ” a very, very high percentage is associated with illegal operations because there is no traceability.”

The official’s mention was included in a statement that banks are banned from trading bitcoin, as reported by CriptoNoticias. The document adds bitcoin or the rest of the cryptocurrencies cannot be considered legal tender in Mexico.

“Virtual assets or cryptoassets are mechanisms for storing and exchanging electronic information. These have no intrinsic value and their technological characteristics may have diverse future uses that may determine their value. Therefore, they are usually assets with a very volatile value and are considered speculative. Although they can be exchanged, they do not fulfill the functions of money, because their acceptance as a means of payment is limited and they are not a good reserve or reference of value”.

Communiqué from the Bank of Mexico, the Ministry of Finance and the National Banking and Securities Commission.

The financial authorities of Mexico issued the document a few hours after Ricardo Salinas Pliego, owner of Banco Azteca, stated on Twitter that in his entity they are working “to bring cryptocurrencies to our customers and continue promoting freedom,” according to what is reported by this medium.

Arturo Herrera Gutierrez said at a press conference with the FATF that a high percentage of bitcoin transfers are associated with illicit operations. Source: Screenshot YouTube.

What is true about the Mexican Treasury holder’s claims about bitcoin?

Arturo Herrera Gutierrez’s claim that bitcoin cannot be considered legal tender, it contrasts with what is happening in El Salvador where it was already declared as such through a law that will enter into force on September 7.

In addition, the official said that the crypto asset is not considered as a store of value, which conflicts with investigations that have proven quite the opposite. An investigation conducted by Digital Assets Data in 2019, revealed that bitcoin is used as a store of value, which allows investors to take it as an alternative to their fiat currency in countries with high inflation rates. In fact, in the same study it is mentioned that the crypto asset is used as a speculative medium, but it happens with a higher trend in countries with lower inflation.

In the case of Mexico, as can be seen in the calculator for the Consumer Price Index, of the National Institute of Statistics and Geography of Mexico (INEGI), inflation in the Aztec country has been 150% for the period from January 2000 to May 2021. For his part, the devaluation of the Mexican peso against the US dollar has been approximately 100% since 2008, going from 10.5 pesos per dollar, to the current 19.9 MXN per USD. This is not to mention its devaluation against bitcoin, whose price was at 25,000 MXN per BTC in February 2017, while it is currently trading at almost 700,000 pesos, according to data from TradingView.

The peso has devalued almost 100% against the dollar in the last 13 years.

On the other hand, Bitcoin’s adoption potential in two South American countries, such as Argentina and Venezuela, has been highlighted since 2016. A study by academic Garrick Hileman of the University of Cambridge School and the London School of Economics determined that both nations had a higher score on the Bitcoin Market Potential Index (BMPI), used to measure the potential of some 178 countries to take on the new technology. It is because the inhabitants of these nations have already adopted the crypto asset as an alternative to protect themselves from inflation.

Returning to the statements of Mexico’s Secretary of Finance and Public Credit, he also claimed that bitcoin cannot be considered as a medium of exchange. However, this falls in contradiction with the record reached by exchanges last May when they exceeded USD 2 trillion in trade volume globally.

As reported by this media in early June, compared to the $ 1.6 trillion registered in April, the month-on-month increase in bitcoin transaction volume, at that time was more than 40%. In addition, the upward trend of these numbers is not a novelty if you take into account that they were setting new records for the fourth month in a row. During each period exchanges exceeded one trillion dollars in trade volume. Clear evidence that bitcoin is used as a medium for exchange.

Likewise, the statement that “a very, very high percentage is associated with illegal operations because there is no traceability”, also mentioned by Herrera Gutiérrez, contradicts the data released by the Chainalysis tool, Market Intel. This software used by the FATF to track bitcoin, demonstrated in 2019 that less than 1% of the total BTC flow that was in the market at that time, was related to illegal activities.

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