Fitch Warns El Salvador's Bitcoin Adoption Will Be Negative for Insurers' Credit

The ratings agency warns there are additional regulatory and operating risks tied to the country adopting bitcoin as legal tender.

Aug 16, 2021 at 5:15 p.m. UTC
Updated Sep 14, 2021 at 1:40 p.m. UTC

El Salvador's decision to adopt bitcoin as legal tender will likely be credit negative for local insurance companies with exposure to the cryptocurrency due to higher foreign exchange and earnings volatility risk, Fitch Ratings said on Monday in a press release.

  • El Salvador’s legislature voted and passed its Bitcoin Law on June 9 that will see the country formally adopting crypto as legal tender on Sept. 7.
  • Fitch Ratings warned there are “additional regulatory and operating risks” around  El Salvador adopting bitcoin as a legal tender, as bitcoin's practical implementation has yet to be defined by regulators worldwide.
  • The agency stressed that it does not expect bitcoin to be widely used by insurers to make claims or benefit payments, nor to offer policies denominated in the digital currency.
  • “The risks of using bitcoin largely relate to its rate of acceptance among policyholders. Insurers will likely convert bitcoin into USD as quickly as possible to limit exchange risks, if policyholders decide to use it to pay premiums,” said Fitch in the press release.
  • Currently El Salvador's insurance sector is exposed to low credit quality securities, mainly sovereign bonds (B-/Rating Outlook Negative).
  • Fitch said additional holdings of high-risk assets will only compound this risk.
The Festival for the Decentralized World
Thursday - Sunday, June 9-12, 2022
Austin, Texas
Save a Seat Now

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

Trending

1
Nomura’s Digital Division to Focus on Cryptocurrencies First, DeFi Later

Phase one of Nomura’s new digital-assets division will include the top 10 cryptocurrencies, with DeFi and NFTs further down the line.

Phase one of Nomura’s new digital-assets division will include the top 10 cryptocurrencies, with DeFi and NFTs further down the line.

2
Solana, Cardano Tokens Slide Over 9% as Cryptos See Weakness Amid Poor US Consumer Data

Bitcoin lost support at $30,000 as Chinese technology stocks sold off on Thursday amid earnings worries a day after hawkish comments from the U.S. Federal Reserve.

Bitcoin lost support at $30,000 as Chinese technology stocks sold off on Thursday amid earnings worries a day after hawkish comments from the U.S. Federal Reserve.

3
Institutional DeFi Enabler? Data Firm Kaiko Probes DEX Liquidity With New Product

The data feed unpacks what’s what in Uniswap, SushiSwap, Curve Finance and Balancer asset pools.

The data feed unpacks what’s what in Uniswap, SushiSwap, Curve Finance and Balancer asset pools.

4
US Appeals Court Orders SEC to Bring Enforcement Actions to Jury Trials

The 5th Circuit Court of Appeals found that the targets of SEC enforcement actions had their constitutional rights violated by the use of in-house judges.

The 5th Circuit Court of Appeals found that the targets of SEC enforcement actions had their constitutional rights violated by the use of in-house judges.