The adoption of the Bitcoin Standard by nation-states has begun. El Salvador will become the first country to declared BTC a legal tender. The announcement was made recently; the crypto space and its industry are still processing its impact.
Although a relatively small country, El Salvador could trigger a similar effect as when MicroStrategy included BTC into its treasury. At that moment, a domino effect caused one of BTC’s biggest adoption periods by public companies.
As Nayib Bukele, El Salvador’s Head of State said via his Twitter handle, Bitcoin has a $680 billion market cap. If 1% of this number it’s invested in this country, according to Bukele’s calculations, their GDP could grow by 25%.
After a violent civil war, El Salvador adopted the dollar as their official currency. Many went into exile or migrated to other countries with better economies. This had two consequences for the country: it relies on the U.S. dollar stability, with concerns about rising inflation in this currency seems logical for the country to promote an alternative.
As a second consequence, many people receive remittances. Around $6 billion are paid to third parties to process the remittances. Bukele claims that by adopting BTC, 1 million low-income families will benefit and will increase their incomes “in the equivalent of billions of dollars every year”. Bukele said:
On the other side, Bitcoin will have 10 million potential new users and the fastest growing way to transfer 6 billion dollars a year in remittances.
Further data provided by the Head of State indicates that around 70% of the country’s population are unbanked. However, many have access to a smartphone. Bitcoin will be a tool to create financial inclusion and help economic growth. People will be able to save, invest, access credit, and their transactions will be secured by BTC’s network.
One Small Step For Bitcoin, One Giant Step…
Many countries around the globe shared these conditions. Many wondered how much it will take for other Heads of State to notice the benefit of the Bitcoin Standard. In the U.S. alone, local government officials, senators, congressmen and congresswomen, and other government officials have celebrated the announcement.
Caitlin Long, a member appointed by the state of Wyoming to the Blockchain Select Committee and a 22-year Wall Street veteran, believes El Salvador’s decision could open a back door for banks in the U.S. to handle Bitcoin.
1/ THREAD ABOUT A HISTORIC DAY in #bitcoin: #ElSalvador president publicly announced support for legislation to make #BTC legal tender. *IF* it does become law, it wld have many secondary effects. Steel yourselves bc a big fight on this probably coming thohttps://t.co/BrrNxaLzpZ
— Caitlin Long 🔑 (@CaitlinLong_) June 6, 2021
Long clarified that “legal tender” it’s a commercial law term, it means that citizens can offer an asset to pay for an obligation and in exchange for a property. She added that:
Legal tender is key to commercial law, which is THE foundational layer of any legal system (…). Bitcoin is treated as an “indefinite intangible” which means lower-of-cost-or-market, but if it’s a foreign currency it gets mark-to-market up & down.
This means that BTC can be added to corporate treasuries without a company having to face “punitive accounting”. BTC could be treated as any other foreign currency. Thus, more companies could find benefits in adopting BTC. Long added that the cryptocurrency could be treated as money and explained:
it means Bitcoin would gain special status in banking systems globally. Banks would likely treat it as any other foreign currency. #Bitcoin *MAY* get back-door favorable treatment under bank capital requirements.
US Commercial Law Angle. If El Salvador actually goes ahead and recognizes Bitcoin as legal tender…Bitcoin then becomes “money” under UCC § 1-201…. 🧐 https://t.co/CQLZhXt2XE
— Andrea Tosato (@Andrea_Tosato) June 5, 2021
At the time of writing, BTC’s price action remains choppy and trades at $36,140. The cryptocurrency has been moving in the mid area of its current levels. There is much uncertainty for the coming weeks, many expect more downside, but the impact of the recent announcements could materialize in the short term and add fuel to restart the rally.