A Chivo Bitcoin cash machine (ATM) in the Multiplaza Mall in San Salvador, El Salvador, on Saturday, August 28, 2021. El Salvador began installing Bitcoin ATMs that will allow its citizens to convert cryptocurrency into US dollars exchange and withdraw cash, as part of the government’s plan to make the token legal tender.
Camilo Freedman | Bloomberg | Getty Images
El Salvador bought about $ 20.9 million worth of Bitcoin the day before it officially introduced the world’s most popular cryptocurrency as legal tender.
In a series of tweets on Monday, President Nayib Bukele announced that the country had bought a total of 400 bitcoins, the first step in a larger move to include the digital currency on its balance sheet.
The tweets were posted every few hours. Based on the Bitcoin price at the time of the tweets, the amount of digital coin purchased was approximately $ 20.9 million.
“Our brokers will buy a lot more as the deadline approaches,” he wrote.
Bitcoin price rose after the tweets and traded at around $ 52,681.85 on Tuesday at 12:16 p.m. ET.
The posts came hours before El Salvador’s Bitcoin law, passed in June, went into effect on Tuesday. El Salvador is the first country to accept Bitcoin as a legal currency that works alongside the US dollar. Proponents and critics around the world will watch this unprecedented experiment play out.
Bukele’s announcement marks an important milestone for Bitcoin. El Salvador is now the first country to officially include Bitcoin on its balance sheet and keep it in its reserves.
But politics has met with criticism across the country. Nearly 70% of the Salvadorans polled by Central American University disagreed with the government’s decision to make Bitcoin legal tender. Many were also unsure of how to use digital currency.
Proponents of El Salvador’s move say this indicates a growing adoption of Bitcoin and that other countries may follow suit. The Salvadoran government hopes it will promote financial inclusion in a country where around 70% of citizens do not have access to traditional financial services, according to Bitcoin law.
Remittances or the money that migrants send home are also important for the economy and, according to the World Bank, make up more than 24% of El Salvador’s gross domestic product.
The legislation allows prices to be displayed in Bitcoin, payment of tax contributions with the digital currency and exchanges into Bitcoin are not subject to capital gains tax.
El Salvador has launched a wallet app called Chivo, which citizens can sign up for with a national ID to make transactions using Bitcoin. Users get $ 30 worth of Bitcoin when they sign up for faster adoption.
Last Tuesday, Congress in El Salvador passed a bill creating a $ 150 million fund to facilitate the conversion of bitcoin to US dollars.
But Bitcoin is sometimes known for wild volatility, raising concerns about its effectiveness as a currency.
“Bitcoin is not really designed as a medium of exchange, so this is an early experiment for the currency,” Philip Gradwell, chief economist of the data platform Chainalysis, told CNBC’s “Capital Connection”.
“I think the main purpose in El Salvador will be to make remittances and people using it to save some fortune and maybe just to compete with the dollar in the country.”