Bitcoin and Crypto Trading in El Salvador
Using crypto in El Salvador
El Salvador is the first country to instate bitcoin as legal tender. This is a bold experiment and the government’s way of endorsing crypto.
El Salvador is stepping up usage of crypto 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.
There appears to be no restrictions or taxes on gifting crypto.
Law and crypto trading 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.
Taxing cryptocurrencies 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.
Possibly no capital gains tax on bitcoin.
If you are a long-term resident of El Salvador you are deemed a permanent resident for tax purposes. Should you move and become resident, your tax affairs will come under the jurisdiction of your country of residence.
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.
Crypto financial services in El Salvador
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.
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 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.