BigONE Interpretation: El Salvador passes the Bitcoin Bill!
Bitcoin became its legal fiat currency-what does this mean?
On June 9th, Beijing time, the Congress of El Salvador, a northern country in Central America, passed the “Bitcoin Law” with an “absolute majority” vote, becoming the first country in the world to use Bitcoin as fiat currency. Nayib Bukele (Nayib Bukele) submitted the “Bitcoin Bill” to Congress for a vote on June 9. It was then announced through its Twitter handle that the “Bitcoin Bill” had been passed by the country’s Congress: 62 of the 84 MPs who participated in the vote voted in favor.
The bill reads: “The purpose of this law is to supervise Bitcoin as an unrestricted fiat currency, granting it the right to freedom, unlimited use in any transaction, and requiring public or private natural or legal persons to drive. No ownership is restricted.”
Since Bitcoin was launched as the world’s first cryptocurrency, its supporters have trumpeted its power to subvert the financial system and change the nature of the currency. But a simpler problem remains unsolved. Can it be used in the real world as common functions such as daily consumption and transfers like other legal currencies? What impact will El Salvador have on the future Bitcoin market? Let’s see how BigONE interprets this.
Can Bitcoin fulfill the basic functions of fiat currency in El Salvador?
In the bill passed by the El Salvador Congress, one thing is essential to note. In theory, Bitcoin will create a payment channel parallel to the U.S. dollar. Prices may be quoted in cryptocurrencies, and exchanges that use it will be exempt from capital gains tax. Later, it will require establishing a fund to ensure that Bitcoin can be converted into U.S. dollars. It is unclear how El Salvador will eventually use Bitcoin as fiat currency. The bill states that the exchange rate between Bitcoin and the U.S. dollar “will be freely determined by the market,” The country’s current official currency is the U.S. dollar. The law also states that El Salvador will “provide the public with access to bitcoin transactions through the necessary training and mechanisms.” According to the bitcoin bill, about 70% of the country’s population has not yet enjoyed traditional financial services, and this cryptocurrency is seen as a means to increase financial inclusion. If it rises to the level of inclusiveness, in BigONE’s view, Bitcoin in El Salvador is likely to realize the basic functions of fiat currency in the future.
Why did El Salvador make such a decision?
According to related news, El Salvador’s other fiat currency is the U.S. dollar. Transfer and remittance costs are important sources of Salvador’s GDP, accounting for 20% of Salvador’s GDP. This is mainly from Salvadorans working in the United States, but they are transferring money. A large part of the remittance process will be lost due to the costs of cross-border transfers, and Bitcoin can help it reduce these costs. El Salvador is a so-called dollarized economy, which means that the fiscal and monetary decisions of the US government and the Federal Reserve will have a huge impact, and the adoption of Bitcoin can make the country more independent.
In addition, in 2020, El Salvador’s economy suffered its worst collapse in four years due to the impact of the coronavirus epidemic, and its fiscal deficit expanded to more than 10% of GDP. Because measures to curb the spread of the epidemic have also harmed the interests of enterprises. On the one hand, the government is looking for new sources of funding. On the other hand, the Ministry of Finance is also negotiating with the International Monetary Fund on a $1.3 billion expansion fund arrangement to help it meet this year’s financing needs. Still, the country’s economy remains dangerous as the negotiations have reached a deadlock. It is due to these two reasons that El Salvador made such a decision.
What does the passage of the Bitcoin Bill mean to the Bitcoin communities?
Since its inception, Bitcoin has attracted increasing interest from mainstream financial companies, who see cryptocurrency as a potentially lucrative new field. But a basic question remains unresolved: Can Bitcoin become another financial transaction tool, just like the U.S. dollar and other traditional currencies? Although it is a store of value, is it worth buying? Compared with many other assets, it has fewer direct links with the economic cycle. What happens in El Salvador, a country with a population of 6 million, will be closely watched by global financial institutions and investors to find clues to the answer. As for how it will affect the Bitcoin communities and whether it will cause the market to rise sharply, it seems that there is no such situation. After all, there will be a long process from legislation to practical application. It remains to be seen whether Bitcoin can bear the responsibility of fiat currency. Therefore BigONE recommends that investors do not need to be too nervous and wait for changes. According to data provided by CoinDesk, in April this year, Bitcoin once set a historical record of $64,829.14, but it has since been slashed. Nevertheless, in the past 12 months, Bitcoin has still risen by 230%. This increase is due to increased interest from institutional investors and the purchase of large companies such as Tesla and Square. But irrespective, as an investor, you should still look at it rationally.
About BigONE
BigONE is a global cryptocurrency exchange that provides a platform for trading various cryptocurrencies. It was founded in 2017 and registered in the Netherlands. The group operates in Russia, Brazil, Vietnam, Seychelles, Singapore, Japan, and Indonesia, providing marketing, investment, and blockchain technology research & development.
