For the first time, the leading cryptocurrency will become a legal payment method along with the US dollar. How might this affect digital assets, and which countries may soon follow the lead of El Salvador? Let’s try to figure it out.
On June 9, El Salvador’s parliament passed a law that formalized bitcoin as a legal tender. Shortly, the document will be signed by the country’s president Nayib Bukele. The El Salvadorian authorities will have 90 days after the law enters into force to create the appropriate infrastructure.
Acceptance of BTC for payment will become mandatory in the country. The cryptocurrency is going to be legal tender along with the US dollar.
After such a high-profile event, the leading cryptocurrency grew by 5%, and its capitalization increased to $643, according to CoinGecko.
El Salvador motives
El Salvador itself does not have any weight for the crypto market, and the country does not even have its own national currency (calculations are carried out in dollars). This country may have decided to accept bitcoin as a means of payment, as it might help migrants transfer money to their families in El Salvador.
The fact is that the entire economy of this country is 70% dependent on such dotations from migrants who have left to work in other countries.
Most likely, this is why the decision of the El Salvadorian authorities might have practically almost no meaning for the crypto market. Much more important may be the authorities’ statements of those countries that intend to fight against digital assets or strictly regulate them. Do not forget about former US President Donald Trump, who called Bitcoin a scam and also called on the American authorities to “very tightly” regulate the circulation of digital assets in the country.
Who might be next?
LATOKEN experts are sure that the Bitcoin adoption as a means of payment in El Salvador is a historic milestone. It marks the acceptance of Bitcoin as a vehicle for value transfer by not just retail or institutional users but national regulators. El Salvador’s example may be followed by other countries that are distinguished by high dependence on emigrant remittances, hyperinflation of the national currency, economic instability, or sanctions restrictions imposed by the United States and Europe.
Other countries from the poorest category may take a similar step, but for digital assets, this also has very little value since most of the investors and traders are concentrated in the US, EU, and Asian countries.
A couple of days before the Bitcoin adoption as a means of payment in El Salvador, Panamanian Congressman Gabriel Silva also announced the need for such a step. He called on the Panamanian authorities to support the cryptocurrency so that the country can become a hub for technology and entrepreneurship. According to Silva, Panama’s National Assembly is already working on this bill.
Potential consequences for crypto investors
There was a post on Reddit that the BTC adoption as a means of payment in El Salvador could negatively affect coin owners in the taxation field, as the IRS will now be able to treat bitcoin as a foreign currency.
Roger Brown, a former senior adviser to the IRS, is confident that if this happens, any gains from a trade or investment will have a “normal” tax character, according to Decrypt. Cryptocurrencies now have a lower capital gains interest rate for assets held for more than a year.
In March 2014, the IRS issued a notice stating that cryptocurrency is the property and not currency for US federal income tax purposes. According to Brown, this position was explained by the fact that digital currencies are (were) not legal tender in any country in the world, and after the decision of the El Salvadorian authorities, the whole situation may change. The IRS may start to consider cryptocurrency as a real currency.
Brown, however, doesn’t believe that the IRS will be brave enough to make any changes to tax rules just because the coin was recognized as legal tender in El Salvador. Despite the importance of this decision, El Salvador is not at the European Union level. At the same time, Brown did not rule out that the IRS may revise tax rules for the leading cryptocurrencies in the future if other countries start using them as a means of payment.
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LATOKEN crypto exchange does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Like other assets, cryptocurrency is subject to market risk. Please do your own research and trade with caution.