Bitcoin has officially become the legal tender of El Salvador. Is it economic redemption or an investment bubble?


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Since then, in El Salvador, commodity prices can be displayed in Bitcoin, taxes can be paid in digital currency, and Bitcoin transactions will not be subject to capital gains tax.

Original title: “El Salvador passes the bill! Bitcoin officially becomes legal tender》
Written by: Yu Xudong Source: Wall Street

Today, El Salvador officially passed a bill with an “absolute majority” vote to make Bitcoin a legal tender in the country, which means that El Salvador has become the first country in the world to grant legal status to a digital currency.

The President of El Salvador, Nayib Bukele, stated that El Salvador will grant permanent residency rights to immigrants who issue 3 bitcoins (approximately US$102,000). He also said that the Salvadoran government will launch a Bitcoin wallet for citizens, but citizens can choose whether to use it or not.

Since then, in El Salvador, commodity prices can be displayed in Bitcoin, taxes can be paid in digital currency, and Bitcoin transactions will not be subject to capital gains tax.

At the bill meeting, Bukele believes that this will help create jobs and promote financial inclusion. He has previously stated that Bitcoin can boost the economy, help cope with the low penetration rate of El Salvador’s banks, and increase the transfer speed of $6 billion in remittances each year.

In addition, El Salvador will operate a trust fund that will hold about 150 million U.S. dollars worth of bitcoin to offset the volatility of the bitcoin market and ensure that merchants do not have to take risks. However, despite El Salvador’s promotion of cryptocurrency development, Bukele does not intend to de-dollarize.

In fact, earlier today, Bukele has submitted a law to the country’s parliament, proposing to make Bitcoin a legal tender. The proposal stated: “The purpose of this law is to regulate Bitcoin as an unrestricted legal tender, so that Bitcoin has free power and is unrestricted in any transaction, and has public or private, natural or legal entities. Any ownership you have.”

The exchange rate between Bitcoin and El Salvador’s other legal tender, the U.S. dollar, “will be freely determined by the market.”

After the news was announced, Bitcoin pulled up by approximately US$300 in a short-term, with a 24-hour increase of nearly 5%, and is now reported at US$34,131 per coin.

Why choose Bitcoin? 20% of GDP depends on foreign workers’ remittances

Currently, El Salvador’s economic transactions mainly use cash, and about 70% of people do not have a bank account or credit card. Remittances or money sent home by migrants account for more than 20% of Salvador’s GDP. For these international transfers, existing services may charge a fee of 10% or more, and sometimes it may take several days to arrive.

Although the details of how El Salvador’s idea of ​​Bitcoin works have not yet been announced, according to CNBC, El Salvador has formed a Bitcoin leadership team to help build a new Bitcoin-based financial ecosystem.

It is worth noting that previously, the President of El Salvador, Nayib Bukele, announced that El Salvador has established a partnership with the digital currency wallet company Strike to use Bitcoin technology to build the country’s modern financial infrastructure.

In March of this year, Strike launched a mobile payment application in El Salvador. After the application was released, it quickly climbed to the number one download position.

Strike founder Jack Mallers said that as Bitcoin’s global influence continues to expand, it will become a kind of change. The change is that Bitcoin is not only the largest reserve asset in history, but also an excellent currency network. The currency provides a way to protect developing economies from the potential shock of fiat currency inflation.
Mallers also stated that this move will help individuals, businesses and the public sector to develop its power and potential through the daily use of Bitcoin on the open network.

Blockstream CEO Adam Back said that El Salvador became the first country to use Bitcoin as a legal tender, which is inevitable.

Back also stated that he plans to contribute technologies such as satellite infrastructure to make El Salvador a model for the world, and is happy to help El Salvador embark on the path to adopting Bitcoin standards.

legal tender? Investment bubble?

Proponents of Bitcoin believe that Bitcoin, a digital currency, has the property of holding value similar to gold and can play a role in hedging inflation. Others believe that Bitcoin has great volatility and is an investment bubble that may burst at any time.

In mid-April this year, the price of Bitcoin hit a record high of over 63,000 U.S. dollars, and then plummeted to nearly 30,000 U.S. dollars in the following month. In May, the famous business person Musk said that he would stop using Bitcoin as a payment method. This news prompted the cryptocurrency market to shrink hundreds of billions of dollars in one day. However, so far in 2021, the price of Bitcoin has risen by nearly 30%.

At present, some countries have stepped up their crackdown on Bitcoin. Among them, on May 18, the China Internet Finance Association, the China Banking Association, and the China Payment and Clearing Association jointly issued the “Announcement on Preventing the Risk of Hype in Virtual Currency Transactions.” The announcement pointed out that financial institutions and payment institutions must not use virtual currencies to price products and services, and must not directly or indirectly provide customers with other services related to virtual currencies. The news shocked the domestic virtual currency market.

At the same time, most central banks in the world are studying the possibility of creating their own digital currency. Bank of England Governor Bailey (Andrew Bailey) pointed out in a discussion paper released on June 7: “We live in an increasingly digital world, and the way we pay and use money is changing rapidly.” In April this year, the United Kingdom. The central bank announced that it is studying the creation of a digital currency that coexists with cash and bank deposits.

In addition, the Digital Currency Research Institute of the People’s Bank of China, the Hong Kong Monetary Authority, the Central Bank of Thailand, and the Central Bank of the United Arab Emirates announced in February this year that they have jointly initiated the m-CBDC Bridge research project for multilateral central bank digital currencies to explore the role of central bank digital currencies. Application in cross-border payment.

So far, Bitcoin, a digital currency, has not gained the full trust and support of any government. As for whether it is a bubble, we can only wait for time to test.

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