On June 9, 2021, Beijing time, El Salvador passed a bill to make Bitcoin the country's legal currency.
➤ Born in QE
In 2008, a financial crisis triggered by the US real estate industry swept the world.
The reason why a country’s crisis can affect the whole world is because of the US dollar.
The Federal Reserve has issued a large amount of US dollars through QE (quantitative easing), which has led to the depreciation of the US dollar. As the number of US dollars increases and the value decreases in the United States, people tend to use US dollars for consumption and reduce savings and investment. The increase in consumption has increased the speed of domestic economic circulation in the United States, and the domestic economy of the United States has gradually recovered.
Although many countries also use QE policies to reduce exchange rate risks, the US dollar reserves and US dollar assets of countries around the world are still shrinking collectively.
In international trade, companies that export to the U.S. dollar will still see a decrease in revenue even if prices rise and the dollar continues to fall.
Thus, against the backdrop of QE, Bitcoin was born - a peer-to-peer cash system, a decentralized network and financial symbol.
➤ Crazy about QE
In 2020, another disaster swept the world.
The world's economy and health are suffering.
The country that upholds democracy and advocates freedom has once again fallen into crisis.
QE has once again become the "magic weapon" to save the market.
However, this time, there is no upper limit for QE.
Since 2020, the US M2 has been rising wildly:
Since January 2020, US M2 has grown by 30%.
At the same time, under another round of even crazier QE, the price of Bitcoin also soared from US$7,000 to US$34,000, with the highest point being about 8.6 times.
➤ El Salvador’s new currency
Beijing time, June 9, 2021:
Wall Street News said that El Salvador passed a bill to make Bitcoin the country's legal currency:
Sina Finance reprinted an article from Golden Finance, saying that http://U.today reported that Congress has not yet passed it.
Regardless of whether the bill is officially passed at this point, we cannot deny that Bitcoin is one step closer to Satoshi Nakamoto’s ideal.
❚The helplessness of small countries
Some people say that El Salvador is just a small country.
However, the point is not about small countries or big countries. You should know that when Bitcoin first became a payment tool, 10,000 Bitcoins were only exchanged for 2 pizzas. But this is a major step in the history of Bitcoin.
It is true that El Salvador is a small country, but you must know that only a small country can be the first to support Bitcoin as legal tender!
The central bank issues legal tender, which is backed by the country's strength, the government's and the central bank's credit. For example, a powerful country like China, with good epidemic control, stable economy and social progress, has a strong foundation for the renminbi, and we do not need Bitcoin to become legal tender.
But El Salvador is different.
El Salvador doesn’t even have its own sovereign currency. Before Bitcoin became legal tender, the legal tender in El Salvador was the U.S. dollar.
The problem is that under the current QE background, the US dollar is being flooded with money. Whether it is used for infrastructure, subsidies for individuals, or support for enterprises, it can hardly reach the hands of the Salvadorans.
Of course, the little bee does not understand the actual economic situation in El Salvador. However, in the environment of dollar QE, the dollar in El Salvador's hands has shrunk, and it will not receive as many dollar benefits as Americans. In the environment of dollar QE, the Salvadorans are likely to suffer losses.
That’s why a new bill in El Salvador recognizes Bitcoin as legal tender.
Think about this: Salvadorans have two currencies: Bitcoin and the U.S. dollar.
The former is highly volatile, but in the long run it is scarce and deflationary.
The latter has smaller fluctuations, but is inflationary in the long run, especially in the past two years.
Then some people will be bullish on Bitcoin and bearish on the US dollar, thus spending the US dollar and keeping the Bitcoin. In this way, the US dollar can still play a role in stimulating the economy in China, while reducing the risk of depreciation caused by holding US dollars.
Some people say, "Wait until this small country collapses because of Bitcoin, and the good news will turn into bad news." I think he is overthinking it. Bitcoin will not become the only legal currency in El Salvador. Bitcoin and the US dollar can both circulate. So at most the circulation of Bitcoin will decrease, which will not cause the country to collapse.
❚Olive branch from a small country
There are two important messages in this El Salvador bill:
The first is that El Salvador will grant mobile permanent residency for 3 bitcoins.
The second is that "without affecting private sector actions, the state should provide alternatives that allow users to transact in Bitcoin and automatically and instantly convert Bitcoin into U.S. dollars if they wish."
These two are connected together.
Anyone who owns more than 3 bitcoins can become a resident of El Salvador and can freely exchange bitcoins and US dollars.
Obviously, this is an olive branch, giving more space to coin lovers. Here, the US dollar and Bitcoin can be legally exchanged.
Of course, this does not apply to Chinese people. Chinese residents cannot hold the nationality of another country and China at the same time, but cryptocurrency friends from other countries may be able to obtain this benefit.
Of course, the little bee still doesn't know much about immigration, and doesn't know how feasible this is. But for some bigwigs, the exchange of Bitcoin and US dollars is still very important. After all, Salva is not far from the United States.
❚ Small country ambitions
The new El Salvador bill also states: “Bitcoin exchanges will not have to pay capital gains tax, just like fiat currency exchanges.”
If capital gains tax is imposed on cryptocurrency transactions, this link can only be through exchanges, and only exchanges have personal identification information. In El Salvador, "Bitcoin exchanges will not have to pay capital gains tax like fiat currency exchanges." We can speculate whether there will be trading platforms and blockchain companies registered in El Salvador?
If this is the case, more institutions and individuals will move to El Salvador, and the Salvadoran economy will naturally increase to a certain extent.
Think about Biden’s recent plan to “raise capital gains taxes on the rich”. There is a lot of ambition hidden in this law in El Salvador…
So, do you still think that it will not have any impact if a small country uses Bitcoin as legal tender?
The first small country to use Bitcoin as legal tender has already appeared, and the second may not be far away. Panama? Malta? Seychelles?
➤Optimistic fantasies and risk warnings
Yesterday, Trump was asked about Bitcoin in an interview and called it a scam. You don’t need to ask this question to know how Trump will answer.
On the one hand, Trump has not withdrawn from the role of the US president at all, and he plans to run again in 2024. As the leader of the United States and a stakeholder in the US dollar, he will naturally oppose Bitcoin. If he were still the president of the United States, perhaps he would not have such radical language, but now Trump can express it more directly.
Therefore, when asked about Bitcoin, Trump will most likely use extreme language to express his opposition to Bitcoin.
What’s interesting is that given Trump’s status, he should be interviewed frequently, so why was he asked about Bitcoin on this day?
Bitcoin is generally in a convergence trend. In recent days, it has shown an upward trend, but it reached the peak of convergence yesterday. It is hard to say whether it will rise or fall. At this time, the media interviewed Trump and asked him about Bitcoin.
Bitcoin fell in response, there is optimism but also risk.
Let's talk about optimism first: Bitcoin suddenly fell yesterday, perhaps due to Trump's remarks, or perhaps it was just the dealer taking advantage of the situation to dump the market. In any case, it fell by about 10% yesterday. As a result, it rebounded again at the close of the market. Yesterday's daily line formed an optimistic long lower shadow, which means that the short-selling failed.
Now let's talk about the risks: the bearish sentiment in the market is still strong. Otherwise, the market would not have fallen sharply yesterday because of a remark by Trump (a former president with no control and not much influence in the Republican Party).
❖Written at the end❖
The background of Bitcoin’s birth was the US dollar QE in 2008.
Interestingly, Bitcoin has experienced three bull markets, and only the bull market in 2021 was the craziest and had the highest increase. Behind this madness is QE that is even crazier than that in 2008.
After the frenzy, Bitcoin entered a state of tangled shock. But the US dollar's QE does not seem to stop.
In this environment, countries affected by the US dollar QE are in a passive and helpless situation. This is the background for El Salvador to use Bitcoin as legal tender.
El Salvador does not only use Bitcoin as legal tender, the US dollar is still the legal tender.
If Bitcoin stabilizes, then compared with the US dollar, which is still in QE, Bitcoin is good money, while the US dollar is bad money. Bad money will naturally drive out good money.
If Bitcoin stops falling, Salvadorans may hoard their Bitcoins and spend their dollars.
So it doesn’t matter whether Bitcoin can be widely circulated in El Salvador.
Importantly, under El Salvador’s new law, anyone who invests more than 3 BTC can become a resident there and can legally and freely exchange between fiat currency and Bitcoin.
Importantly, there is no capital gains tax on bitcoin transactions in El Salvador. Compared with Biden's proposal to increase capital gains tax rates on the rich, El Salvador's olive branch could not be more obvious.
Will exchanges and blockchain companies consider moving to El Salvador?
Of course, regarding this, Little Bee is just fantasizing. As to whether it makes sense and how much sense it makes, both the author Little Bee and you, the reader, need to think deeply about it.
There will not be any substantial benefits in the short term, but more of an impact from the news. In the long term, there will still be an impact. After all, Bitcoin has reached another historical node from the first time it bought pizza to now.
If the above fantasy about El Salvador is correct, then the long-term benefits of Bitcoin will gradually be released...
El Salvador has taken a risky move, but this is a challenge and an opportunity for the country...
This article is purely fantasy and does not constitute investment advice!
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Three years have passed, and things have changed. Many of the discussions and opinions at that time were limited by the environment at that time. However, it is not just the environment that has changed?
It's been 3 years and everything has changed.
Bitcoin is still Bitcoin, and $35,000 worth of Bitcoin is only worth nearly $60,000.
Trump said Bitcoin was a scam then, what about now? #trump
As for the President of El Salvador who took a risky move at the time, looking back three years later, this decision has received more support...
