El Salvador’s decision to adopt Bitcoin as legal tender could have adverse effects on insurer’s credit, according to ratings by Fitch.
The American credit rating agency released a report on Monday claiming that insurance companies with exposure to Bitcoin face volatile risks due to foreign exchange rates, as well as additional regulatory and operating risks. Global regulators are yet to define the practical implementation of Bitcoin. This compounds the challenge of using it as a store of value and means of payment.
…particularly given no previous or comparable usage or adoption by central banks in other global financial markets.
Fitch also suggested that extended periods of exposure to Bitcoin will increase volatility and asset risks that will likely return negative credit. It wrote:
Fitch views Bitcoin’s lack of transparency as a downside risk and anticipates treating Bitcoin as a “risky asset” in its Risky Asset Ratio; to the extent such holdings can be identified.
The agency noted that El Salvador’s insurance sector is already exposed to low credit quality securities. Holdings high-risk assets will only heighten this risk.
As reported by BTC PEERS, varying opinions have trailed El Salvador’s Bitcoin Law. Although the move has been lauded by the crypto community, a few global organizations have frown at the decision.