The President of El Salvador, Nayib Bukele, announced intentions to make bitcoin legal tender in El Salvador by passing a bill in the second week of June 2021. This was announced at the Bitcoin 2021 conference in Miami, Florida via a recorded message to the surprise and excitement of the crowd in attendance.
He followed through days later with the El Salvador Congress voting a majority (62 of 84 legislatures’ vote) to pass the bill on 09 June 2021, making bitcoin legal tender in the nation. A historic precedent for bitcoin and the world.
This has received quite the positive response on Twitter and throughout the bitcoin and cryptocurrency community.
Caitlin Long (@CaitlinLong_) as always, has excellent insight into the implications of such an important development:
Thread about a historic day in #bitcoin: El Salvador president publicly announced support for legislation to make #BTC legal tender. If it does become law, it would have many secondary effects. Steel yourselves because a big fight on this probably coming though.
I dunno anything about politics in El Salvador, but the world is about to pressure it given what’s at stake (see details below). But before turning to that, SERIOUS HATS OFF to president Bukele, @JackMAllers & @Blockstream for pulling this off. Guys this is REALLY big!!
OK let’s dig in. Here’s a tl;dr: If El Salvador adopts legislation to make #bitcoin legal tender, bitcoin:
*likely gets status as money so treated on par w/ foreign currency by banks
* possibly gets ‘cash’ accounting treatment under USGAAP/IFRS (solves #BTC adverse acctg)
That’s why this is likely gonna be a knockdown fight: it MAY be a back-door way to enable banks to handle #bitcoin + MAY solve #bitcoin’s lower-of-cost-or-market acctg problem. Politicized immigration debate in US probably comes into play too. Incumbents WILL try to block this.
What’s the big deal — what’s “legal tender” anyway? Its a commercial law term (means citizens must accept “X” if offered in payment of an obligation in exchange for delivering property). Legal tender is key to commercial law, which is THE foundational layer of any legal system.
In 2018, some in #Wyoming wanted to make #bitcoin legal tender, as Wyoming had already done so w/ gold & silver. Artcile 1 Section 10 of US Constitution mentions gold & silver explicitly, but making anything else legal tender in US requires amending the US constitution.
So, it wasn’t possible to make #bitcoin legal tender in the US without amending the US constitution. I thought at the time another country might do it though, & thereby open the door to treatment of #bitcoin as “money” under commercial law + “cash” under acctg rules.
TO BE CLEAR, I’m not an accountant so making an educated guess. Accountants, please chime in!! #bitcoin is treated as an “indefinite intangible” which means lower-of-costs-or-market, but if it’s a foreign currency it gets mark-to-market up & down…
And, if I’m right, other corporate treasurers could also buy bitcoin w/o facing its punitive accounting treatment – they’d now account for it like any other foreign currency. No more adverse accounting => more companies start holding bitcoin. But accountants please chime in!
Back to the law. Commercial law lays out the rights and obligations of parties when exchanging property + establishes a road map for judges to adjucate disputes.
If El Salvador does pass legislation to recognize bitcoin as legal tender, $BTC would very likely become *MONEY* under US commercial law. “Money means a medium of exchange currently authorized or adopted by a domestic or foreign govt”.
What’s the significance? Well, it means bitcoin would gain special status in banking systems globally. Banks would likely treat it as any other foreign currecy. Bitcoin *MAY* get back-door favourable treatment under bank capital requirements (Basel 3, etc).
The knock-on effect of El Salvador’s announcement is that other countries may now follow. One likely candidate has always been Russia, which has been gradually de-dollarizing since before the 2008 Financial crisis. Will be very interesting to watch the foreign policy moves.
However this plays out, it’s a historic day for bitcoin and it advances adoption no matter how it plays out. Wonderful for all involved. Congrats to everyone – most especially to the people of El Salvador!– Caitlin Long on Twitter
Her thread can be found below:
I think she sums up the possible advantages and advancements that this move in the geopolitical landscape implies.
The president of El Salvador also added laser eyes to his Twitter profile pic:
This is a historic day in bitcoin history and sets a precedent around the world. Other nations including Panama and Paraguay are considering making bitcoin legal tender. This sets off a domino effect.
Similarly to how no hedge fund wanted to be the first to endorse and include bitcoin, once Stan Druckenmiller advocated for bitcoin, it opened the flood gates for other nations. Similarly, El Salvador is opening the flood gates for other Nations to adopt bitcoin as legal tender.
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