El Salvador to Propose Sweeping Crypto Legalization Framework

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El Salvador’s government is working on new legislation to expand its support scope for cryptocurrencies after declaring Bitcoin a legal tender in September 2021.

All Digital Assets Welcome

According to the draft of a recent document, El Salvador’s government is working on a Digital Asset Insurance Law, which would regulate the transfer of any cryptocurrency. The new law will separate Bitcoin from other digital assets in the country, thus creating a bespoke framework that will cover these coins instead.

The new draft law essentially places a solitary requirement for an asset to be considered a digital asset, it needs to be built on a distributed ledger. With such a broad range, the law could essentially group every coin, broadening the scope of assets covered if implemented.

The new law hopes to set proper guidelines for crypto operations in the Central American country. According to a further Twitter thread, crypto-focused attorney Ana Ojeda Caracas pointed out some of the focus points the law appears to have. These include legalizing digital assets, creating a registry for digital asset service providers, and regulating initial public offerings (ICOs).

It is worth noting, however, that the law doesn’t include transactions with central bank digital currencies (CBDCs). Since these assets are already regulated by the financial regulators that launch them, El Salvador will exclude them from the new guideline. Other assets excluded include coins not eligible for trading, sovereign assets regulated by international laws, and assets with restricted transactions.

The Two Sides of El Salvador’s Bitcoin Play

Despite an unprecedented bear market, El Salvador has continued progressing with crypto adoption. After declaring Bitcoin a legal tender last September, the country has continued to buy more asset units, with President Nayib Bukele believing that crypto is the key to the country’s economic transformation.

Last week, Bukele tweeted that he would begin buying 1 BTC daily. The country has spent about $103 million on its bitcoin purchases, with data from Buy Bitcoin Worldwide confirming that it currently has 2,381 BTC. However, with the leading cryptocurrency currently trading at $16,500, the value of El Salvador’s BTC sash now sits at $39.28 million, implying a loss of more than $63 million.

Nevertheless, El Salvador’s Bitcoin gambit has also come under heavy criticism. When the draft of the current legislation was released, local hacktivist Mario Gomez said in a Twitter Space that Bukele’s government appears to be creating a breeding ground for any type of company in the crypto industry to set up.

As Gomez explained, most companies in crypto prefer to set up in small countries because of easier access to the government. And with the Bukele administration already showing a propensity for crypto, some major industry players could find it easier to make the country a testing ground for their pro-crypto policies.

Ethereum founder Vitalik Buterin has had some harsh words for Bukele and his cabinet viz a viz the Bitcoin gamble.

In an interview last week, he explained that the El Salvador Bitcoin bet was made under the assumption that the asset’s price would only go up. Now that this has yet to be the case, the company’s bet appears to be failing, coupled with the fact that many Salvadorians don’t appear to be using Bitcoin.

Buterin also aimed at Bukele’s administration and its seeming undemocratic policies, which members of the crypto community appear to have conveniently brushed off.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.