Fitch warns El Salvador’s Bitcoin adoption risk for insurance companies

Fitch shared their point of views on Bitcoin adoption as legal currency by El Salvador. According to Fitch this decision will drag down the credit rating of El Salvador.

It became a very common thing for El Salvador’s president to face criticism for their historical decision to adopt Bitcoin as legal currency. As all of us know very well that Bitcoin law of El Salvador will come into effect officially from September. But from time to time many agencies are directly & indirectly putting their points on the decision of Hon’ble president Nayib Bukele.

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In a press release, Fitch stated that all the insurance companies of El Salvador will remain restricted to accept Bitcoin because Bitcoin will be legal currency in El Salvador, so they can’t stop people from paying in Bitcoin.

As Bitcoin’s price can fluctuate, it will put a pressure on these companies either to sell instantly or face loss because of volatility in price. So this will bring a problem for these insurer companies. 

“Insurers that hold Bitcoin on their balance sheets for extended periods will be acutely exposed to its price volatility, increasing asset risk, which is a credit negative”

And also Fitch argued to make this adoption for limited numbers of business operations because these insurance companies will sell the Bitcoin payments instantly, so no use case of Bitcoin takes place for them.

Fitch also added that In present time it is not clear by the government authorities that instant conversion of Bitcoin into USD is possible or not. So the insurance industry requires insurance companies to absorb new IT, operating and administrative expenses.

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