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How can I trade Bitcoin and cryptocurrency in El Salvador?
Introduction to Bitcoin and crypto trading in El Salvador
In many ways, having declared Bitcoin as a legal tender ought to position El Salvador as the top crypto-friendly country in the world, at least in terms of acceptance and government outlook. But as we have seen with other countries, the all-around strength of the crypto economy with positive regulation and sensible policies counts higher in our ranking scores. As you would expect there is a much higher than average proportion of the population holding crypto and also a higher than average number of ATMs. However, plenty of evidence suggests that the population is unwilling to let go of traditional currencies and take crypto fully to heart.
Having announced Bitcoin as legal tender, the most important aspect of all is what the coin is trading at – and the recent falls in price, naturally make its own population keen to avoid using it for the everyday mainstream currency. For the record, when El Salvador made its blockbuster announcement that Bitcoin would become Legal tender, the government also provided a digital wallet app, complete with some £20 worth of Bitcoin to each citizen and created a number of Bitcoin ATMs across the country. The launch caused worldwide consternation, but in El Salvador, it was seen as an economic boost with businesses, obliged to accept Bitcoin as payment. Even more ambitious was the country’s announcement
Bitcoin is a controversial currency choice mostly because it is a new concept and as such its value can fluctuate wildly. It has risen and fallen dramatically several times since it inception with the last few months seeing its value drop to under $40k from its highs of nearly $70k as little time ago as November 2021. Undeterred, El Salvador’s President has plans for a ‘Bitcoin City’ – a bit like Las Vegas but without Ocean’s Eleven – as a means to further spice his country’s adoption of Bitcoin as legal tender. Bitcoin City, would, of course, be financed by Bitcoin, but at current prices, it may need to start out as Bitcoin Village.
Recent warnings by the International Monetary Fund (IMF) urging El Salvador to reverse its decision to make Bitcoin legal tender are also adding to the uncertainty of what many call a bold experiment. When it comes to Bitcoin in El Salvador or anywhere, it’s all about price, and large price drops have pointed to instability and inflation in the country.
Spending Bitcoin in El Salvador
El Salvador is the first country to instate bitcoin as a legal tender. This is a bold experiment and the government’s way of endorsing crypto.
El Salvador is stepping up the usage of Bitcoin with the implementation of some 200 bitcoin ATMs. In essence, the majority of crypto usage is in transacting and sending money, which can be expensive and time-consuming via traditional banks. Using crypto to send and receive money, especially smaller amounts, is a pattern of daily life, particularly for middle and lower-income residents.
Gifting crypto in El Salvador
There appear to be no restrictions or taxes on gifting crypto.
Bitcoin and crypto trading law in El Salvador
By making bitcoin legal tender, El Salvador has legitimized it and other cryptocurrencies in a big way. Nearly all countries recognize cryptocurrency as a form of exchange token, property, or asset class, with countless subclassifications for various coins and tokens. The government of El Salvador has hailed crypto as the future of money, though the emergence of a central bank digital currencies (CBDC) may complicate matters. El Salvador is also one of a number of countries that use the US Dollar as its official currency, so the move to bitcoin is a step into uncharted waters.
El Salvador is moving fast on crypto. The economy relies greatly on payments being made to its people from citizens working abroad. For this reason, the country has turned to the lightning network to facilitate crypto transactions with minimal fees. The government has also sponsored an official bitcoin wallet application, allowing users to convert between US Dollars and bitcoin when sending and receiving payments. The Central Bank of El Salvador has published technical standards for the regulation of bitcoin, which state that financial institutions and banks should offer bitcoin services to their customers. Financial institutions must apply to the Central Bank of El Salvador if they wish to offer digital wallets and related services.
Bitcoin taxation in El Salvador
Income tax applies to trading gains. Given its status as legal tender, the gains accrued on bitcoin will not attract capital gains tax. There is possibly no capital gains tax on bitcoin.
If you are a long-term resident of El Salvador you are deemed to be a permanent resident for tax purposes. Should you move and become a resident, your tax affairs will come under the jurisdiction of your country of residence.
Bitcoin mining and taxation
One of the most publicized and prohibitive costs of mining is the electricity the activity consumes. El Salvador, in its keenness for all things crypto, has plans to promote mining through the use of inexhaustible power sourced from volcanic energy. It sounds like a sci-fi plot but LaGeosSV, the state-owned geothermal electric company, is planning to offer facilities for bitcoin mining using 100% renewable and clean energy from volcanoes.
Bitcoin and crypto financial services in El Salvador
Fin services/retirement account
Most retirement and pension funds worldwide deem cryptocurrencies to be too volatile to become part of long-term retirement schemes. There is little certainty on this at present, but those able to pay the higher fees associated with higher-risk investments will probably be able to include crypto within their retirement plans. Now that bitcoin is deemed legal tender in El Salvador, there seems to be no reason why it should not be included in any financial plan.
Fin services/Banking interest
Following hot on the heels of the designation of bitcoin as legal tender, El Salvador is actively encouraging its banks to facilitate crypto services. This is in addition to the country’s creation of a state-backed wallet, Chivo.
Decentralized Finance and blockchain technology are linked to the growth of crypto around the world. The status of bitcoin as legal tender in El Salvador is one thing, but it remains to be seen whether more aspects of Defi will be integrated into the country’s financial system.
Crypto regulation in El Salvador
As with any crypto dealings you are considering, it’s always a good idea to check the levels of security, protection, and insurance any exchange can offer you. With bitcoin’s new status as legal tender, a government-approved wallet, and government sponsorship of the banking sector to facilitate crypto transactions and trading, it would seem that the population would be secure and protected against fraud at least when using home-based services. Regarding overseas exchanges, security is a matter of individuals checking that their chosen exchange has a good record against loss and fraud.
Now that Salvadoran banks are being urged to participate in crypto services, transparency will likely follow. Under the new pro-bitcoin guidelines, El Salvadorian financial institutions are required to ensure customers go through the standard Know-Your-Customer (KYC) verification processes. They also need to implement anti-money laundering (AML) procedures when dealing with bitcoin.
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This is not financial advice. Coincub is an independent publisher and comparison service. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. This space changes rapidly and evolving, so please make sure to do your own research. Although we do our best to provide you the best information, we cannot guarantee the accuracy or applicability of any information on this site or in regard to your individual circumstances.