Crypto colony: is Bitcoin the best option for El Salvador?

El Salvador Economy Bitcoin

El Salvador’s President Nayib Bukele activated his laser eyes on Twitter and pushed the bill to make Bitcoin a legal tender.

El Salvador’s President Nayib Bukele activated his laser eyes on Twitter and pushed the bill to make Bitcoin a legal tender. In its attempt to bring inclusion and financial freedom to its citizens. Could you have chosen another option?

We thought it should have opted for one of the stablecoinscryptocurrency linking its value to foreign assets as fiat currencies, have much less volatility than Bitcoin also allow users to take advantage of a growing list of financial applications that help people to manage and grow your assets. If the objective is to help Salvadorans, 70% of whom do not have bank accounts, to obtain rights in the financial system, it should aim there.

For example, users can take advantage of popular stablecoins such as USDC and DAI, which aim to maintain their value at a parity of $1. Even better, they can use DeFi lending protocolsstaking to generate annual rates of return in excess of 2% for their stablecoins, which beats the 0.06% average annual return offered by traditional bank savings accounts.

Taxable income

That is not the only obstacle. We also find the question of the tax treatment of Bitcoin. Because the IRS classifies Bitcoin and other cryptocurrencies as “property,” any US individual or business that receives Bitcoin as payment from El Salvador may have to pay a capital gains tax when the currency is converted to US dollars.

Additionally, the feds may consider Bitcoin payments with Salvadoran origin as income. “If you are a US citizen or resident alien, your worldwide income is subject to US income tax.

Therefore, when a resident of the US is paid in Bitcoin for a project with a Salvadoran company, it is an income to the taxpayer of US treatment of El Salvador to Bitcoin as a currency has no impact on this statement.”

In other words, even though Bitcoin becomes legal tender in El Salvador, it won’t make any difference to the IRS – it can be considered both taxable income when received and property tax when spent or converted to dollars.

Characteristic moment

Even so, the adoption of Bitcoin by El Salvador occurs at a characteristic moment in the evolution of cryptocurrencies, the Bukele legislation, which was approved with a supermajority in the Salvadoran Congress on June 9, distinguishes the country as the first in the world to make Bitcoin a legal and officially recognized currency.

The state of Bitcoin as “legal tender” means that can be used to settle financial obligations such as taxes. In addition, the legislation also requires economic agents to accept Bitcoin as payment for goods and services, and ensures that the government will provide the private sector with the training and technology necessary to meet this objective.

Latin American adoption

Other Latin American countries could accompany El Salvador. Carlitos Rejala, congressman and national deputy of Paraguay, said: “Our country needs to advance hand in hand with the new generation”, on Twitter, highlighting his new profile photo with Bitcoin laser eyes. And he added: “This week we begin with an important project to innovate Paraguay in front of the world!”. The independent deputy of Panama, Gabriel Silva, also expressed his support for the cryptocurrency.

Along with El SalvadorParaguay, and Panama, other Latin American government leaders who openly support cryptocurrencies represent ArgentinaBrazilColombiaMexico, and Ecuador. But if these Latin American leaders support cryptocurrencies because of their potential to bring financial stability to the unbanked, Bitcoin may be the wrong horse to support.

In May, Mexican cryptocurrency exchange Bitso, which serves clients in MexicoBrazil and Argentina, became Latin America’s first crypto unicorn after raising $250 million in Series C funds and achieving a valuation of $ 2.2 billion. While Bitso offers nine cryptocurrencies, including ETH, its main focus is Bitcoin. We think that Bitso has a great opportunity as a facilitating exchange in this process.

Permanent residence

Meanwhile, Bukele is also offering crypto entrepreneurs immediate permanent residence in El Salvador, noting that El Salvador has no property tax or capital gains tax on Bitcoin (as it will be legal tender). On June 7, Justin Sun, the founder of the blockchain-based operating system TRON, announced that TRON would become the first crypto company to establish an office in El Salvador.

“We hope this decision is just the beginning to provide a space where some of the world’s leading innovators can reimagine the future of finance, potentially helping billions around the world,” Bukele said via video link on the Bitcoin 2021 conference in Miami last weekend.


For the first time, a member nation of the International Monetary Fund kicks the board and tries to put an end to the Swift payment system by adopting Bitcoin as its official currency. While it is unknown how or if the international banking system will adapt to El Salvador’s new digital currency regime, it is still a historic milestone in the crypto world.