Has Bitcoin Just Lost Its First Legal Tender Country? Yes and No, New Analysis Shows
The president of El Salvador and vocal Bitcoin (BTC) supporter Nayib Bukele went silent on Bitcoin matters after the country bent the knee to the International Monetary Fund (IMF) and made major changes to its Bitcoin adoption strategy. However, the main question of whether BTC is still legal tender in the country is more complex, a new analysis shows.
After analyzing the legal amendments in El Salvador, JAN3, a Bitcoin company that helps nation-states with BTC adoption and develops the Aqua wallet for BTC, has concluded that BTC both is and isn't legal tender in the country. Usually, if a form of money is recognized as legal tender, it must be accepted if offered in payment.
However, according to Samson Mow, a prominent Bitcoiner and CEO of JAN3, "it's complicated" in El Salvador.
"The amendments to the [Bitcoin Law] are very clever and allow for compliance with the IMF agreement while allowing the [El Salvador government] to save face," Mow added.
According to the analysis, in the aforementioned law, which was passed in 2021, BTC is no longer classified as currency, and its acceptance in payments is now only voluntary. However, the law still defines BTC as legal tender, which, according to Mow, is "contradictory."
"It is defined as legal tender but lacks the thing that actually makes it legal tender," the CEO said, adding that after BTC lost its "currency" status in El Salvador, it made it harder for other countries to recognize it as a "foreign currency" now.
Moreover, the country's citizens can no longer pay taxes or any other state-related payments in BTC. Even tourists are not able to pay their $12 fees at the airport in BTC. Additionally, per the analysis, the government can no longer touch BTC and is required to get rid of its Chivo wallet. However, it's unclear what will happen to its BTC reserves. Data from blockchain intelligence platform Arkham shows that the country now holds more than 6,000 BTC, worth almost USD 590 million. It also seems that El Salvador, which secured a $1.4 billion loan from the IMF, continues to buy 1 BTC every day.
It's unclear how long this might continue.
"I would assume that the [government] can continue to acquire bitcoin as an asset (SBR, [strategic bitcoin reserve]) since they are continuing with that, but it could also be that it may be stopped at a later time," the CEO said, adding that this will depend on the intricacies of the agreement with the IMF.
In either case, BTC users can still spend their cryptocurrency without needing to pay capital gains tax.
"This seems to be in line with the more mainstream acceptance that Bitcoin is an asset, not money or a currency," Mow commented.
However, while BTC transactions, even with state support, haven't been very popular in El Salvador, with the new amendments, the country might see even fewer options to spend BTC. According to the CEO of JAN3, Bitcoin becoming optional may lead to big companies, like Super Selectos, deprecating Bitcoin payment support.
However, the CEO emphasized that “Bitcoin will be fine.”
"The door is still open to Bitcoin in [El Salvador]—whether because of face-saving or dedication to Bitcoin, the Bitcoin Law is still there, and that's something," Mow concluded.