El Salvador buys 400 bitcoins before the law, making it legal tender

El Salvador buys 400 bitcoins before the law, making it legal tender

A Chivo Bitcoin ATM (ATM) at Multiplaza Mall on Saturday August 28, 2021 in El Salvador, El Salvador. El Salvador has started to set up bitcoin ATMs, allowing its citizens to convert the cryptocurrency into US dollars and withdraw it. In the case of cash, governments plan to make tokens legal tender.

Camillo Friedman | Bloomberg | Getty Images

El Salvador bought nearly $ 20.9 million worth of bitcoin a day before the world’s most popular cryptocurrency was officially adopted as legal tender.

In a series of tweets on Monday, President Nayib Bukele revealed that the country had purchased a total of 400 bitcoins, a major effort to add digital currency to its balance sheet.

The tweets were posted every few hours. Based on the price of bitcoin at the time of the tweet, the total amount of the digital coin purchased was approximately $ 20.9 million.

“Our broker will buy more as the deadline approaches.” he wrote.

The price of Bitcoin surged in the wake of the tweets and was trading around $ 52,681.85 at 12:16 p.m. ET on Tuesday.

The posts come hours before Salvadoran bitcoin law, which was passed in June, goes into effect on Tuesday. El Salvador is the first country to accept bitcoin as legal tender, which will work alongside the US dollar. Supporters and critics around the world will be watching to see how this unprecedented experience plays out.

Bukele’s announcement is a milestone for bitcoin. El Salvador is now the first country to officially put bitcoin on its balance sheet and keep it in its reserves.

But this policy is criticized across the country. Almost 70% of Salvadorans polled by the University of Central America disagreed with the administration’s decision to adopt bitcoin as legal tender. Many also didn’t know how to use digital currency.

Supporters of El Salvador’s move say it indicates growing acceptance of bitcoin and other countries may follow suit. The Salvadoran government hopes to promote financial inclusion in a country where nearly 70% of citizens do not have access to traditional financial services under the Bitcoin law.

Remittances, or money sent by expatriates, are also important to the economy, which accounts for over 24% of El Salvador’s GDP, according to the World Bank.

The law allows prices to be displayed in bitcoin, tax contributions to be paid with digital currency, and bitcoin exchanges not to be subject to capital gains tax.

El Salvador has launched a wallet app called Chivo, which citizens can register with a national ID to transact using bitcoin. To speed up adoption, users will receive $ 30 worth of bitcoin when they sign up for a push.

Last Tuesday, El Salvador’s Congress passed a law creating a $ 150 million fund to facilitate the conversion of bitcoin to US dollars.

But bitcoin is known for its sometimes wild volatility, which raises concerns about its effectiveness as a currency.

“Bitcoin is not really designed as a medium of exchange, so this is a first experience for a currency,” Philip Gradwell, chief economist at the Chainalysis data platform, told Capital Connection. from CNBC.

“I think the primary use in El Salvador will really be around remittances and the people who use them to save money and actually maybe have some competition for dollars in the country.”

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