From now on, Bitcoin is considered legal tender in El Salvador. After the government of the small state in Central America had already passed a corresponding law in June, this comes into force immediately. Thus, the most valuable cryptocurrency in the world is now the official currency in El Slavador next to the US dollar.

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The law also has consequences for trade in the country. He must now accept payment with Bitcoin in his stores for goods and services, provided that the traders have the technical infrastructure to accept BTC.

Support program for BTC payments

However, in the small country on the Pacific coast, it is likely to be the exception that appropriate technology for processing crypto payments is available. The government has also developed a solution for this. Thus, BTC are adopted by the government to exchange them in US dollars. In addition, a support programme for the technical infrastructure in trade is to be launched. 150 Million euros are to be made available in the trust fund for the projects.

In addition, the residents of El Salvador should be encouraged to familiarize themselves with the technology of cryptocurrencies and be introduced to the topic of Bitcoin as a means of payment. Thus, there is already a state commercial by drawing attention to the use of the country’s digital Bitcoin wallet, the so-called Chivo wallet.

Wallet download will be rewarded with $ 30

And the government creates quite an incentive to use the BTC wallet. Thus, anyone who downloads the software Wallet will receive $ 30 worth of Bitcoin. For the inhabitants of the state, which is poor in comparison to Germany, this may well be a good argument. After all, the amount is about 200 percent higher than the average daily income of a local.

In addition, the government has decided that no capital gains tax will be levied on exchanges with the Bitcoin. In the future, employees or companies will be allowed to pay annual income or sales tax in Bitcoin in addition to dollars.

Will El Salvador get rich from BTC holdings?

For the government, however, strategic reasons are likely to play a role in the adoption of Bitcoin. Because by exchanging BTC for dollars, the government’s Bitcoin holdings are growing continuously. And this is likely to be in the best interests of President Nayib Bukele, who is himself a big fan of cryptocurrency and was the driving force behind the bill to introduce BTC as a national currency.

Apparently, the government is speculating on further rising BTC prices compared to the US dollar. Because in addition to the currency aspect, it should also be a goal to use Bitcoin as a store of value in the country. If Bitcoin prices rise, this would also automatically increase the reserves of the digital currency in the country. Should the calculation work, the state could build up significant assets, provided that the BTC price will rise, for example, to the often mentioned $ 100,000. Measured at the current BTC level, the BTC value stock could roughly double in dollars.

Extreme Bitcoin price fluctuations worry residents

However,the plan could also fail if the Bitcoin price does not continue to rise as hoped, but there is a sharp correction. For example, if the BTC/USD price falls to $ 25,000, it would halve the government’s BTC assets measured in dollars. So it is quite a risky strategy for the government to now fully rely on Bitcoin as currency, means of payment and store of value.

Even within the population, there is by no means only enthusiasm for the Bitcoin strategy of the president. There are major concerns about price volatility in particular. Because the price fluctuations of BTC are still significant. If there was a Bitcoin around a year ago for 10.000 dollars to buy, it cost in May 2021 more than 60.000 dollars, in July 2021 again less than 30.000 dollars and now again more than 50.000 dollars. The fluctuation range of the course is therefore still considerable.

Many residents also complain that they lack the necessary know-how for the use of Bitcoin as a means of payment and that they will continue to use the dollar for this reason alone. About 70 percent of state residents said in a survey that Bitcoin as a currency is rather skeptical.

Will VW and Coca Cola accept Bitcoin?

The question is also how the large resident corporations in the country will react to the Bitcoin strategy. Well-known companies with a presence in the country include Coca-Cola, McDonalds, Volkswagen and the Sheraton hotel chain. You will have to decide whether to accept Bitcoin as a means of payment, even if this is not the case at the locations in other countries so far.

In the case of large corporations, corporate policy reasons can stand in the way of acceptance, even if, unlike the small retailers in El Salvador, they can undoubtedly raise the funds and know-how to create an appropriate technical infrastructure for the acceptance of Bitcoin.

However, if you oppose this, it is not yet clear what the consequences might be. If the state government insists on the acceptance of Bitcoin by law, the companies could possibly be banned from trading in the worst-case scenario. Or the corporations themselves react and withdraw from the country.

However, this in turn should not be in the interests of the president, as the corporations are ultimately important revenue pillars in the country, attract customers and boost tourism in the Pacific state. It will be interesting to see how Volkswagen and Co.will react to the new law.

Is El Salavdor Driving Global Bitcoin Adoption?

The best thing, of course, from the perspective of BTC supporters, would be if El Slavador becomes an initial spark and the corporations then develop a global strategy for Bitcoin as a means of payment. This could significantly increase Bitcoin adoption if a corporation like Coca-Cola officially announces support for Bitcoin or other cryptocurrencies in trading.

The examples from the recent past show what effect this could also have on the course. For example, PayPal’s announcement in the fall of 2020 to integrate BTC and selected altcoins as a means of payment has given the course a strong boost. At that time, Bitcoin was still trading at around 10,000 dollars and rose massively immediately in the wake of the announcement.

Similarly, the announcement by Tesla boss Elon Musk earlier this year caused a sensation that the carmaker has not only bought BTC worth 1,5 billion dollars, but also wants to integrate it as a means of payment in its online store. However, when Musk withdrew this measure shortly afterwards, citing ecological reasons, the market reacted with a steep correction.

It remains to be seen how the introduction of Bitcoin as a currency in El Salvador will have a long-term effect. Both for the small state itself, and for the development of BTC.