In late January, the Arizona legislature introduced a new bill Bitcoin (BTC 1.45%) legal tender within the state. If the bill passes into law, Arizona will become the first US state to have Bitcoin as legal tender.
While this may seem quixotic to many cryptocurrency skeptics, it is actually similar to what El Salvador did in September 2021 when it became the first country in the world to legalize Bitcoin. Since then, the government of El Salvador, led by President Nayib Bukele, has become one of the staunchest supporters of Bitcoin on the world stage. So it’s natural to ask: What will be the consequences of Arizona making Bitcoin legal tender?
Arizona Bitcoin Bill
The new Arizona bill officially states that Bitcoin can serve as a medium of exchange for “payment of debts, government fees, taxes and duties.” It will also require merchants to accept Bitcoin as payment for all commercial transactions. In fact, keeping $20 worth of Bitcoins in your digital blockchain wallet will be the same as keeping a physical $20 bill in your real-world leather wallet.
Image source: Getty Images.
Of course, Bitcoin is already legal in the US, but the Arizona Bitcoin bill would add a whole new dimension. It will affect every business in Arizona, which has a state GDP of $337.42 billion in 2021. This is more than 10 times the national GDP of El Salvador. In addition, the Arizona legislature introduced a bill that exempts cryptocurrency from taxation. In other words, the state government could not tax you for your crypto holdings. If you expect Bitcoin to rise to the moon, this is a big deal.
But does this Arizona bill actually have a chance of passing? On the surface, it seems very difficult. First, State Senator Wendy Rogers, the politician behind the Bitcoin push, attempted to pass this bill in 2022 and failed on second reading. Wendy Rogers is a very polarizing figure in the world of Arizona politics, so she may have trouble getting true bipartisan support for the bill. And second, some legal experts say the Bitcoin bill could be illegal under the US Constitution’s “contract clause,” which prohibits states from issuing their own money. So, even if the draft law is adopted, it can be closed in the courts for a long time.
Potential impact
However, Bitcoin bulls can definitely dream. For example, the decision to make Bitcoin legal tender in El Salvador has had some positive effects. First, Bitcoin has made it much easier for Salvadorans living outside the country to send remittances home. This is important because El Salvador is one of the leading countries in the world when it comes to remittances. Bitcoin has also led to a surge in “crypto tourism” for the country. A small beach town known as Bitcoin Beach was even featured by CBS News. 60 Minutes. Based on that success, there are now plans to build a Bitcoin City in the country.
So if you extend this example to Arizona, the new Bitcoin bill will affect migrants entering the state to work, given that Arizona shares a 370-mile border with Mexico. This will likely make it easier for these unbanked migrants to transfer money home. And that could lead to a crypto-tourism boom for cities like Phoenix. Instead of Bitcoin Beach, Arizona could promote Bitcoin Desert. Come visit the Grand Canyon and then spend your Bitcoin in Phoenix!
There is another possible economic impact here, and that is the possibility of Arizona becoming a cryptocurrency hub. Tech entrepreneurs from Southern California may be tempted to move to Arizona the way tech entrepreneurs like Elon Musk are now moving to Texas. Add in the fact that the state of Arizona is trying to create a cryptocurrency tax-exempt estate, and you can immediately see how Arizona could become an attractive destination for anyone who believes in the future of cryptocurrency.
Bitcoin’s global appeal
At some point, Arizona could become a real $337 billion market opportunity for Bitcoin. Of course, this can only happen if everyone within the state starts accepting Bitcoin. And that’s likely to happen if there’s another big Bitcoin bull market rally where everyone gets rich. This was the case when El Salvador made Bitcoin legal tender in 2021.
However, even skeptics have to admit that Bitcoin has recently gained legitimacy around the world. For example, in December 2022, Brazil passed a new Bitcoin bill. The Pacific island nation of Fiji has also elected a pro-bitcoin prime minister. Additionally, several Caribbean island nations are now planning to make cryptocurrency legal tender.
So Arizona is by no means out on the world stage. I am bullish on Bitcoin long and hope that Bitcoin will one day be able to enjoy a Grand Canyon sized market opportunity like the one in Arizona.