On Monday, Central American country El Salvador acquired an extra $6.8 million USD worth of bitcoin, hours after the price of bitcoin fell from over $48,000 USD to a recent low of $45,000 USD.
The President has been a vocal proponent of El Savador’s adoption of bitcoin as an official currency since the government revealed on September 7th that it would make bitcoin a legal currency alongside the US Dollar, right after becoming the third country in the world to purchase bitcoin on its ledger.
Bukele claimed that El Salvador had intentions to buy “a lot more” bitcoins after the initial purchase of 200 bitcoins, and the country appears to be following through on that promise.
El Salvador has just bought it's first 200 coins. Our brokers will be buying a lot more as the deadline approaches.#BitcoinDay#BTC🇸🇻
Passed by a majority back in June, the law recognising bitcoin as a national currency in El Salvador alongside the US dollar went into effect on September 7th, 2021.
Under this new law, any fiat transferred into bitcoin will be exempt from capital gains tax. Individuals and businesses alike will be able to use bitcoin to pay taxes and make purchases, with companies being required by law to accept payments in bitcoin alongside the US dollar.
While businesses in El Salvador are legally required to accept bitcoin as a payment option, provided they have the proper technology at their disposal, Salvadoran citizens are not bound to the cryptocurrency, and may choose to opt out of using bitcoin without legal repercussions. Businesses are also allowed to convert their bitcoin sales to USD after receiving payment.
El Salvador’s president remains optimistic that the new developments will positively impact some of the country’s most pressing economic issues.
Data from the World Bank indicates that Salvadoran citizens sending money home from abroad contribute over 24% of the country’s GDP — yet only a minority have the bank accounts necessary to access those funds, and those that do must endure exorbitant transaction charges. According to President Nayib Bukele, the move towards crypto would save Salvadorans $400 million per year in remittance fees.
Bitcoin is the most popular cryptocurrency to date that allows for faster and cheaper cross-border transactions without the involvement of banks. Residents of El Salvador will no longer need to convert their bitcoin to fiat currency as the bitcoin in their wallets can now be used to buy products and services directly from any business in the country.
It’s clear that the Central American nation adopted bitcoin as an official currency in the hopes of attracting international investment, improving job development, and expanding access to financial services for its residents, 70% of whom do not have bank accounts.
President Bukele himself has stated as much, and in the weeks since the announcement, his government has made major steps to encourage bitcoin adoption in their country.
We hope that this decision will be just the beginning in providing a space where some of the leading innovators can reimagine the future of finance, potentially helping billions around the world.
El Salvador has now set-up a national, commission-free bitcoin wallet app that residents may use to complete bitcoin transactions. The app is named Chivo, local slang for ‘cool’, and is being accompanied by a $150 million fund providing $30 to citizens when they sign up, as well as the installation of 200 bitcoin ATMs around the country — designed to allow residents to convert easily between the nation’s two legal currencies.
Although these initiatives have met with praise from the broader Bitcoin community, El Salvador has recently fallen under scrutiny over its financing of what has been referred to as President Bukele’s “passion project”.
Cristosal, a human rights and government transparency organization, reportedly filed a complaint with El Salvador’s Court of Accounts, requesting an audit of the government’s bitcoin purchases and an investigation into the construction of the bitcoin ATMs linked to the Chivo app — all of which were backed by public funds.
Both the World Bank and the International Monetary Fund have expressed concerns over El Salvador’s novel approach to bitcoin adoption. Bitcoin is notoriously volatile, notably hitting a historic high of over $60,000 per BTC in April, before losing nearly half its value in a violent market crash triggered by a tweet, and there are fears that the adoption of such an unpredictable currency could destabilize the country’s economy, putting many Salvadorans’ financial futures in jeopardy.
On the country’s independence day, hundreds of people flocked to the streets to protest the announcements. During the rally, placards criticizing the law were prominent, with some demonstrators setting fire to a Bitcoin ATM in San Salvador, the country’s capital.
Ben is a cryptocoin enthusiast who began by investing and mining Litecoin in 2013. Since that time, he has evaluated hundreds of alternate coins and tokens in a never ending search for the next big thing to grow his portfolio. He has been involved with ICOs, providing guidance and assistance. Ben is a firm believer in searching for fundamental value and actual utility in cryptocoins. He sees blockchain (or a public ledger system) becoming more prevalent in society and expanding its use beyond that of an electronic cash system.
