Again

Making crypto history: El Salvador becomes the first country to approve Bitcoin as legal tender

Thursday, June 10, 2021 by Robinhood Snacks | Disclosures

Return of the coin... Earlier this week, crypto prices fell after US officials recovered $2.3M in Bitcoin ransom. Yesterday, Bitcoin surged 9% after El Salvador became the first country to approve the cryptocurrency as legal tender. El Salvador currently uses the US dollar as its official currency. Expect some cryptic changes:

  • 1. Businesses will have to accept Bitcoin as payment.
  • 2. Salvadorans will be able to pay taxes and bank loans in BTC.
  • 3. Salvadorans who convert BTC to other currencies won't pay capital gains tax.

A new idea indeed... El Salvador's President and his New Ideas party say the move will improve financial inclusion among the 70% of Salvadorans who don’t have access to traditional financial services. Introducing BTC as legal tender could also ease the "remittance fee" burden:

  • One in four Salvadorans live abroad, mostly in the US. Extreme poverty and criminal violence has caused mass migration from the country, home to 6.5M.
  • Nearly three of every 10 dollars in El Salvador's economy come from remittances — aka: money that family living abroad sends back home.
  • $6B: Remittances sent to El Salvador hit a record last year. But money transfer through banks often comes with fees that can add up quickly. BTC is often cheaper and easier to transfer.
THE TAKEAWAY

This could be a valuable experiment... for developing countries considering crypto as legal tender. But analysts are worried about the economic risks posed by BTC’s extreme volatility. El Salvador is one of Central America's poorest countries, and has struggled to manage its finances. It could benefit by converting BTC to $$$ when the crypto's price is high, to help cover its huge deficit. On the flip side, things could go sour if BTC moves the other way, as it has over the past month.