What Exactly are the Implications of El Salvador Declaring Bitcoin a Legal Tender for Crypto
A “big win” for crypto, El Salvador’s Bitcoin adoption has implications for the US and may result in a domino effect which seems to have started with Paraguay hinting at something “important” with BTC.
Over the weekend, Bitcoin Conference 2021 came to an end with the announcement that El Salvador is declaring Bitcoin a legal tender. The legislation will be introduced to make it the world’s first sovereign nation to adopt bitcoin as legal tender, alongside the U.S. dollar.
A legal tender is basically a form of money that is recognized as a satisfactory payment for any monetary debt, but there is no obligation on the creditor to accept the tendered payment.
Unlike China banning Bitcoin, sending the prices crashing, this news didn’t have any visual impact on the price. As trader Hsaka noted, “Price reaction to pre-announced announcements is rarely a function of the content of the said announcement.” As per him, it's a pretty big win for the market, a “landmark moment.”
The market is actually still trying to understand what this means for the leading cryptocurrency. While some are extremely excited, many are dismissive, and others are hopeful.
— Nayib Bukele 🇸🇻 (@nayibbukele) June 5, 2021
Nayib Bukele, President of El Salvador, took to Twitter to share that if just 1% of Bitcoin’s $675 billion market cap is invested in the country, that would increase their GDP by 25%.
As for Bitcoin, it “will have 10 million potential new users and the fastest growing way to transfer 6 billion dollars a year in remittances,” a big chunk of which is lost to intermediaries, he added.
The leading cryptocurrency would basically be doing what it set out to, banking the millions of unbanked and providing financial freedom to them. Bukele noted that 70% of El Salvador’s population doesn’t have a bank account and works in the informal economy. He said,
“Financial inclusion is not only a moral imperative, but also a way to grow the country’s economy, providing access to credit, savings, investment, and secure transactions.”
The G7 announces they are fixing prices while El Salvador announces they are going crypto.
This is a trend to watch: centralized collusion vs decentralized defection.
Incumbents want to freeze things in place, while small states can gain billions by taking another path.
— balajis.com (@balajis) June 6, 2021
El Salvador has taken the route of Bitcoin to mitigate the negative impact of central banks, which control the supply of a currency.
“Small countries can now finally insulate themselves from the effects of dissolute monetary policy. Go Bitcoin to get to higher ground,” said Balaji Srinivasan, a former Coinbase CTO, and General Partner at Andreessen Horowitz. While a “big move,” it needs to be seen how it will be executed, said Srinivasan, according to whom,
“Every country that’s not the USA or PRC will go crypto to retain sovereign transaction and communication channels. And so will tens of millions of American and Chinese citizens.”
more i think about it, the more it seems like a really cool experiment going on in El Salvador. kudos to @JackMallers on the effort
a lot of practical Qs about how this will work. feels like there's a big role to play for exchanges to facilitate BTC/USD liquidity in transition
— Austerity Sucks (@austerity_sucks) June 5, 2021
This even has implication for the US because if El Salvador passes the legislation to recognize BTC as legal tender, the cryptocurrency would likely become “money” under the US commercial law as it defines money as “a medium of exchange currently authorized or adopted by a domestic or foreign govt.”
Bitcoin proponent U.S. Congressman Warren Davidson also embraced the countries’ move on Twitter.
While in itself, this news may not individually impact Bitcoin in a big way, and it makes sense some are skeptical given that El Salvador’s GDP is smaller than Grayscale Investments’ AUM, this move can be the stepping stone for bigger things to come.
US Commercial Law Angle. If El Salvador actually goes ahead and recognizes Bitcoin as legal tender…Bitcoin then becomes "money" under UCC § 1-201…. 🧐 https://t.co/CQLZhXt2XE
— Andrea Tosato (@Andrea_Tosato) June 5, 2021
Not only is this likely to have Bitcoin treated as any other foreign currency by banks, but it could also create a domino effect with other countries to follow suit. Already, it seems to be having an effect with Paraguay hinting at Bitcoin adoption.
“As I was saying a long time ago, our country needs to advance hand in hand with the new generation. The moment has come, our moment. This week we start with an important project to innovate Paraguay in front of the world!” tweeted Carlos Antonio Rejala Helman, Deputy of the Nation. “The real one to the moon BTC & PayPal.”
The El Salvador thing is pretty cool imo. Independently not that big of a deal, gdp smaller than doge mcap and stuff, but could easily be the first domino in a series of increasingly large dominos especially if rumours of neighbouring countries resolve similarly
— ∞ CO฿IE (@CryptoCobain) June 5, 2021
Some skeptics are also pointing to the authoritarian direction Bukele has taken for their concerns about Bitcoins’ latest support. However, in a nation plagued by corruption and deadly violence, 39 years old Bukele is “extremely popular, with an approval rating of over 90% during his second year in office,” noted a Redditor who claims to be from El Salvador.
“The adoption of Bitcoin as legal tender is HUGE news for this country,” said the Redditor adding, “Most legislators have come forward saying they will back the bill.”
Additionally, much like Miami, which is working on becoming a crypto hub of the world, El Salvador is also working on attracting the masses by offering immediate permanent residence for crypto entrepreneurs. No property tax and no capital gains tax on BTC already works in its favor.