Bitcoin is officially recognized as a means of payment for the first time ever. What it means

For the first time ever, the main cryptocurrency will become a legal payment method along with the US dollar. Here is how this will affect digital assets and which countries may soon follow the example of El Salvador.

On June 9, El Salvador's parliament passed a law that formalized Bitcoin as a legal tender. The document will be signed by the President of the country Nayib Bukele in the near future. The El Salvadorian authorities will have 90 days after the law comes into effect to create the appropriate infrastructure.

Acceptance of Bitcoins for payment will become mandatory in the country. The cryptocurrency will be legal tender along with the US dollar, the leader of El Salvador stated.

El Salvador’s Reason

El Salvador per se has no effect on the crypto market. Moreover, the country does not even possess own national currency (settlements are conducted in U.S. dollars). The country has decided to accept Bitcoin as a means of payment to help migrants transfer money to their families in El Salvador.

"The entire economy of this country is 70% dependent on such infusions of cash from migrants who have left for other countries to work."

This is why globally the decision of the El Salvadorian authorities will not affect the crypto market in any way. Statements made by the authorities of those countries that intend to fight against digital assets or strictly regulate them have a much higher impact, he said. For example, the former US President Donald Trump called Bitcoin a fraud and called on the American authorities to "very tightly" regulate the circulation of digital assets in the country.

Who is Next

Nevertheless, the adoption of Bitcoin as a means of payment in El Salvador is a historic milestone, which marks the recognition of Bitcoin as a vehicle for the transfer of value by not just retail or institutional users but by national regulators. El Salvador's example may be followed by other countries that are known by high dependence on money transfers by emigrees, hyperinflation of the national currency, economic instability, or sanctions imposed by the United States and the EU.

Other countries that count among the poorest may take a similar step, even though this has very little impact on digital assets as well, since most of the investors and traders are concentrated in the United States, developed countries of the EU, and Asian countries.

Two days before the adoption of Bitcoin as a legal tender in El Salvador, Panamanian Congressman Gabriel Silva also expressed the need for such a step in Panama. He called on the Panamanian authorities to support the cryptocurrency so that the country can become a hub for technology and entrepreneurship. Silva said Panama's National Assembly is already considering an appropriate bill.

A similar statement was made by the Paraguayan Congressman Carlos Rejala. He hinted that Paraguay's support for the cryptocurrency at the state level will soon be announced.

Implications for Investors

A message on Reddit expresses the opinion that the adoption of Bitcoin as a means of payment in El Salvador could negatively affect coin owners in the field of taxation, as the IRS will now be able to treat Bitcoin as a foreign currency.

Roger Brown, a former senior adviser to the IRS, argues that if this happens, any gains from trading or investments will have a "normal" tax nature, writes Decrypt. Cryptocurrencies now have a lower capital gains interest rate for assets held for more than a year.

In March 2014, the IRS issued a notice stating that cryptocurrency is property and not currency for U.S. federal income tax purposes. According to Brown, this position was explained, among other things, by the fact that digital currencies are not legal tender in any country in the world; but after the decision made by the El Salvadorian authorities, prerequisites arise for the IRS to designate them as a currency.

Brown himself, however, does not believe that the IRS will make any changes to tax rules for Bitcoin just because the coin was recognized as a legal tender in El Salvador. Despite the importance of this decision, El Salvador is not at the level of the European Union or any other major economy, Brown explained. At the same time, he did not rule out that in the future the IRS may revise the tax rules for the main cryptocurrency if other countries start using it as a means of payment.