Back in June, the country of El Salvador became the first country in the world to recognize Bitcoin as legal tender after President Nayib Bukele introduced the Bitcoin Law to the nation’s Legislative Assembly (it’s the country’s version of Congress). The Legislative Assembly passed the law with a supermajority, 62 to 22. and it will into effect in September.
When I first heard this news, I immediately got suspicious about President Bukele’s intent with Bitcoin is and how this will negatively impact the people of El Salvador. After doing some digging around, I have to admit that I’m nervous for El Salvador.
President Bukele has been described by critics as an “authoritarian”. In 2020, he sent in the military to intimidate the Legislative Assembly into approving his loan request of $109 million from the United States, but fortunately, he failed. This past May, the Assembly voted to remove five judges from the country’s Supreme Court and the Attorney General all of whom were vocal critics of the president effectively removing his power checks.
Needless to say, Bukele isn’t someone who has a deep respect for democracy. His opposition has referred to this stunt a “self-coup”.
Bukele’s actions tie into the Bitcoin Law in two distinct ways. The law has been posted to the president’s official Twitter, and in it, it states that Bitcoin will not be subjected to capital gains tax since it’s being treated as a legal currency. What made me suspicious however was instead of addressing the impoverished Salvadorans, the president went to a Twitter Spaces Livestream to talk with foreign investors about the investment opportunities in the country. The entire 2-hour discussion can be found on YouTube.
— Nayib Bukele 🇸🇻 (@nayibbukele) June 9, 2021
My gut reaction was he is trying to make El Salvador a haven for money laundering and tax evasion. And I’m not alone in thinking this as Carlos de Sousa, portfolio manager at Vontobel Asset Management, made a similar statement. Sousa said,
“Cryptocurrencies are overall a very easy to avoid taxation and a very easy way to simply avoid the authorities… you can do money laundering, [tax avoidance], and so on.
And I don’t think I need to explain Bitcoin’s volatility. There’s a reason why the Golden Rule for Bitcoin is to never buy more than what you can afford and the Bukele is essentially gambling with the lives of Salvadoran people. The value of Bitcoin has gone considerably since June 8 and shows no signs of going up anytime soon.
Your citizens should be very aware of the risks involved with holding Bitcoin or any other digital currency besides a “stablecoin”!
They must know that the asset is very volatile, extremely high risk, and predictably cyclical!
I would never advise using BTC as legal tender.
— 🙏 Andrew Elkins 🙏 (@aj_elkins) June 9, 2021
Taking a look at Bukele’s social media pages, they’re filled with glamorous photographs of him in aviator sunglasses and retweeting reaction memes. He kind of reminds me of Elon Musk who in my previous editorial I said should be ignored when it comes to crypto advice. However, his “cool guy” facade has actually won him the adoration of the people.
He consistently has high approval ratings and the people seem genuinely excited over this Bitcoin prospect. Bukele has promised a lot with this new Bitcoin law.
But let’s see what the country is like in 2 years. See what the state of the economy is like and whether or not my fears of the country becoming a money-laundering haven for the elite are unfounded.