El Salvador to make BTC legal tender - Huge international implications for BTC taxation and accounting

in #bitcoin4 months ago (edited)

It is being widely reported that El Salvador's popular young President, Nayib Armando Bukele Ortez, has just announced that he will be sending a bill to Congress to make BTC legal tender in El Salvador (along with the US Dollar).

Bukele Ortez was elected in 2019 with a 54% majority and was at age 37, the youngest man ever elected President of El Salvador.
He is certainly of the Bitcoin generation.

https://www.bbc.com/news/world-latin-america-57373058

https://bitcoinmagazine.com/business/el-salvador-to-declare-bitcoin-as-legal-tender

This is breaking news of huge global importance for the cryptocosm - something I've been waiting for a sovereign state to do for some time.

Its not just that the people of a small South American country will be legally able to pay debts and for government services etc in BTC.

That would be nice, perhaps the start of a trend, but not such a big deal.

The BIG IMPLICATION of this is that EVERY OTHER COUNTRY is forced to recognise BTC as FOREIGN CURRENCY for tax purposes in its own tax laws.

This is because as a matter of international law and the respect for the sovereignty of other nations, each nation has to accept whatever other nations say is their legal tender.

In Israel, my country, the moment El Salvador officially recognises BTC as legal tender, it will change its legal status from ASSET to FOREIGN CURRENCY.
As Israel does not tax foreign currency transactions unless you are a professional trader it means that profits and losses from sale of BTC into shekels and other foreign currencies will not be a taxable event.

The Tax Offices of some countries may not like this but they will have a difficult time trying to change their tax laws to avoid this consequence. Not only would it require legislation but it would be an insult to another sovereign state. It would be one country saying that it doesn't accept the decisions of another sovereign state about what money they accept as legal tender.

The only country I can see that would even consider behaving so insultingly to other countries is the USA.

There is no way Israel is going to insult El Salvador in this way, as El Salvador is a friendly country and its President a friend of Israel and Israel needs all the friends it can get.

And this is the situation of most countries in the world, and El Salvador won't be the last country to recognise BTC as legal tender. How many countries can a nation afford to insult?

More likely will be changes to the taxation of foreign currency transactions generally, but governments (especially of smaller countries) will not want to create problems for import export businesses who have to deal with foreign currencies all the time, nor for citizens who are also using foreign currencies a lot.

The markets have not seemed to react to this big news yet and many people don't understand the big implications.

But they will.


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I had no idea it was this huge or would have global tax implications until you told me!

same :) mindblowing

It's easy for the establishment to dismiss this as some kind of populist move
But consider that he's also made adequate moves to insure against a ban on the currency by neersayers who claim blockchain is not ecological by using volcanic natural resources to generate electricity. That suggests a leader who is a deeper and more strategic thinker than the label populist suggests. Adopting bitcoin as national currency is a briliant move with limited downside. The West will be forced at some point to adopt it and he's getting his country in at a lower price and the wealth will dissipate to all socioeconomic levels, as long as they have a crypto wallet.
. This will also naturally generate more consumer friendly bitcoin interfaces. It's a brilliant political economic move. Thank-you @apshamilton for this great post and illuminating us with this important news.

I was on the Twitter Spaces call when someone asked Pres. Bukele about mining and he said he hadn't thought about it but then mentioned in passing the geothermal electricity El Salvador has that was difficult and expensive to get to the cities.

I felt that his comment about not having thought about mining was genuine, so it could just be the serendipitous synergies that happen when you put your country in the position to attract the brilliance of the crypto community.

Right. Now reading more on him. Am ignorant as to whether he as a leader is deep or strategic. But nonetheless a very significant move for crypto as you convincingly explain. History is replete with consequences of wider impact than anticipated by the original instigator.

Was a Quick way from https://www.bitcoinbeach.com/ to law 😎

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That is a great point you have raised here and believe the majority of people have no clue about these implications. This is probably one of the biggest steps Bitcoin has ever made and the Fudders must be speechless lol.

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I'm surprised that there has been no market reaction, yet the market moves so much on silly Elon tweets.
This is huge in the medium and long term, even if short term investors and speculators don't get it yet.

This is very exact. I think this move is a positive sign for the long term. As for mr Mask, I hope he didn't lose his mind. So much power to one person is not simple and I hope he can handle it or at the least create a solid organizational culture to support what he has built.

Wait... Is this accurate?

Doesn't this mean things will be worse in some countries? In my country, this is actually amazing, though. Tax over bitcoin will be reduced from like 15%+ to around 0.5%. Also, how exactly would this mess with China's recent ban, if they are forced to accept it as payment again? Maybe this is an attempt at countering China's move. Ugh, so many things involved. Maybe the market is bearish right now because of this. There is a chance this works against holders in major countries, if they have an opposite policy to our own less-powerful, dollar-craving countries when it comes to foreign taxation.

The tax situation will vary by country but many countries tax foreign currency gains and losses less and with more exemptions than capital gains taxes.

That may change things in Israel and in other countries of the world. I don't think that will produce a chain reaction favorable to the validation of Bitcoin as legal but what can provoke if isn't implemented in other countries is to boost El Salvador as a tax haven for crypto. Bukele isn't a politician that I like but I've to admit that this is a clever move.

I'm seeing evidence and commentary that this was a direct response to massive USD printing by the Fed (30%+ increase in M2 in 9 months). The inflationary impact has been cushioned in the US by handouts to citizens and banks but for countries using the USD as their only currency (like El Salvador and many others) this is a disaster.

And for those who think the US may be able to pressure President Bukele Ortez out of this historic decision, check this out:

http://www.elsalvadorperspectives.com/2021/05/us-el-salvador-relations-hit-new-low.html

He is clearly charting an independent foreign policy trying to balance Chinese, Russian and US influence.

M O N E Y !

Very big implications! TY for the news and write up. HIVE.Regards

Wtf, this is amazing. Ortez is not the hero we asked for or deserved, he is even better than that. wtffff

Caitlin Long is also seeing these implications:

Por fin un poco de cordura!

It would be cool if they made a legal tender physical gold coin to commemorate the occasion. Kind of like the Casascius coin, but from a government mint.

Congrats this was the most viewed post on all of https://peakd.com/ on the day it was released.