At the end of January, the Arizona legislature introduced a new bill to make Bitcoin (BTC 0.51%) legal tender within the state. If the bill passes into law, Arizona will become the first U.S. state where Bitcoin has the status of legal tender.
The move -- while it might appear quixotic to many crypto skeptics -- is actually similar to the one made by El Salvador back in September 2021, when it became the first nation in the world to make Bitcoin legal tender. 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 only natural to ask: What would be the implications of Arizona actually making Bitcoin legal tender?
The Arizona Bitcoin bill
The new Arizona bill formally states that Bitcoin can serve as a medium of exchange for "the payment of debts, public charges, taxes, and dues." It would also require merchants to accept Bitcoin as payment for all commercial transactions. In essence, holding $20 worth of Bitcoin in your digital blockchain wallet would become the same as holding a physical $20 bill in your real-world leather wallet.
Image source: Getty Images.
Of course, Bitcoin is already legal within the United States, but the Arizona Bitcoin bill would add a whole new dimension. It would impact every business within Arizona, which had a state GDP of $337.42 billion in 2021. That's more than 10 times the size of El Salvador's national GDP. Moreover, the Arizona legislature also introduced a bill that would make cryptocurrency tax-exempt property. In other words, the state government couldn't tax you on your crypto holdings. If you're expecting Bitcoin to skyrocket to the moon, that's a big deal.
But does this Arizona bill actually have any chance of passing? On the surface, it would look highly unlikely. For one, the politician behind the Bitcoin push, state senator Wendy Rogers, attempted to pass this bill in 2022, and it failed on its second reading. Wendy Rogers is a highly polarizing figure within the world of Arizona politics, so she might have trouble getting true bipartisan support for the bill. And secondly, some legal experts say that the Bitcoin bill could be illegal under the "contract clause" of the U.S. Constitution, which prohibits states from issuing their own money. So, even if the bill passes, it might get tied up in the courts for a long time.
Potential impact
However, Bitcoin bulls can certainly dream. In El Salvador, for example, the decision to make Bitcoin legal tender has had some notably positive effects. For one, Bitcoin has made it much easier for El Salvadorans living outside of the country to send remittances back home. This is important because El Salvador is one of the leading nations in the world when it comes to remittances. Bitcoin has also sparked a surge in "crypto tourism" for the country. One small beach town -- known as Bitcoin Beach -- has even been 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 would certainly have an impact on migrants entering the state for work, given that Arizona shares a 370-mile border with Mexico. It would make it much easier for these migrants, who are most likely unbanked, to transmit remittances back home. And it might spark a crypto tourism boom for cities like Phoenix. Instead of Bitcoin Beach, Arizona would be able to promote Bitcoin Desert. Come visit the Grand Canyon, and then spend your Bitcoin in Phoenix!
There's another possible economic impact here, and that's the possibility of turning Arizona into a crypto hub. Tech entrepreneurs from Southern California might be tempted to relocate to Arizona, just as tech entrepreneurs like Elon Musk are now relocating to Texas. Add in the fact that Arizona is trying to make crypto tax-exempt property, and you can immediately see how Arizona might become an attractive locale for anyone who believes in the future of crypto.
The global allure of Bitcoin
At some point, Arizona might turn into a real $337 billion market opportunity for Bitcoin. That would only happen if everyone within the state started to embrace Bitcoin, of course. And that would likely only happen if there is another great Bitcoin bull market rally in which everyone is getting rich. When El Salvador made Bitcoin legal tender in 2021, that was the situation.
That being said, even skeptics have to acknowledge that Bitcoin has been gaining legitimacy worldwide of late. In December 2022, for example, Brazil passed a sweeping new Bitcoin bill. The Pacific island nation of Fiji also elected a pro-Bitcoin prime minister. In addition, several Caribbean island nations are now planning to make crypto legal tender.
So Arizona is not some outlier on the world stage. I'm bullish on Bitcoin long-term, and I'm hopeful that Bitcoin will one day be able to take advantage of Grand Canyon-sized market opportunities like the one in Arizona.
