EL Salvador Announces Bitcoin as Legal Tender
By: Shane Weston
September 13th, 2021
Cryptocurrencies continued its historic trend as El Salvador become the first country to claim bitcoin as its legal tender. On September 7th, the country began its official launch. After the announcement was leaked in June, the development led to the day being called "Bitcoin Day." Prior to this day, El Salvador purchased 400 Bitcoins which is worth an estimated $21 million and put out hundreds of bitcoin ATMs throughout the country.
While "Bitcoin Day" was highly publicized and showed strength for crypto assets moving forward, it was not all pretty for the price of Bitcoin (BTC). The market saw a steep decrease in its price that was caused by a wave of selling. Specifically, Bitcoin dropped by 15%, taking it to a price of $43,000. The lowest price we have seen in almost a month. The price did raise a little throughout the rest of the day but finished off hovering around $46,000. This was 9% lower than the day before Bitcoin Day. Not only was the price decrease a pitfall for Bitcoin, but El Salvador's e-wallet also had its issues. The e-wallet went offline for several hours causing users to not be able to download the app or sign up. It finally was restored later that day.
The rules regarding the legal tender have been presented clearly by the government. There are three main aspects in which Bitcoin can be used. The first aspect makes all businesses nationwide to accept Bitcoin as a formal payment. The law states, "any economic agent must accept bitcoin as a form of payment when it is offered by the person who acquires a good or service." The government is also allowing for its 6.5 million citizens to pay their taxes and any other debt in the form of their new national currency. In addition, if their citizens choose to convert to USD then they will not have to pay capital gains tax. Lastly, the ability to transfer cheaper with Bitcoin is an important motive for the country. El Salvador's economy generates nearly one third of its dollars from remittances.
There are lots of debates and controversy over the official launch of Bitcoin becoming a nation's currency. This includes the volatility and lack of economic fundamentals that have raised questions from other government leaders. Business owners also have to adapt to this as citizens will now be using this new payment. Clearly, the currency change for El Salvador may bring some headwind, but we should all look forward to future development of this historic event.