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El Salvador Crypto Law Allows Bitcoin Investment Banking Boosting Bitcoin Ante in South America

Last Updated June 17, 2024 12:36 PM
Teuta Franjkovic
Last Updated June 17, 2024 12:36 PM

Key Takeaways

  • El Salvador proposed a new law allowing private banks to offer Bitcoin and crypto services, targeting wealthy investors.
  • Only “sophisticated investors” could access these banks, with strict requirements for establishing them.
  • El Salvador planned to move a portion of its national Bitcoin holdings to a secure, offline vault within the country.

The Salvadoran government has proposed  an initiative aimed at expediting the integration of Bitcoin and other cryptocurrencies into its investment banking sector.

A banking law reform introduced to the National Assembly seeks to permit private investors to establish banks capable of offering services in Bitcoin and stablecoins specifically targeting sophisticated investors.

Beyond ATMs: El Salvador Proposes Bitcoin Investment Banking

Bitcoin adoption is poised for a new surge in El Salvador. The Salvadoran government has proposed a reform  to the banking law, introducing a new type of bank that can offer Bitcoin and cryptocurrency services.

On June 13, the banking bill reform  was presented to the Technology, Tourism, and Investment Commission of the National Assembly. The proposal includes 14 new articles defining Private Investment Banks (PIB) as essential instruments that promote economic development and channel financial resources into business and government projects.

If approved, this initiative will enable the establishment of banks that can provide various services such as economic risk management, financial product purchases, investment management, hedging, and other financial derivatives. These services will support any legal tender in El Salvador, including the US dollar and Bitcoin.

Bitcoin Banks for the Wealthy Aim for Growth

The bill also explicitly supports instruments based on stablecoins, paving the way for crypto-based investment options. However, the requirements for establishing a Private Investment Bank (PIB) are stringent, with companies needing a capital of $50 million at inception.

Additionally, these banks will not cater to all Salvadorans; their services will be aimed at “sophisticated investors.” Such investors must demonstrate ownership of at least $250,000 in assets and pass a bank-specific knowledge test, or show ownership of $500,000 in assets.

Despite these requirements, the Salvadoran government believes that these institutions are crucial for the country’s economic progress. In a press release, the government emphasized the importance of developing a regulatory framework that promotes and facilitates the establishment and operation of PIBs to foster economic growth.

Offline Storage for National Holdings

In March this year it was announced that El Salvador plans to transfer a substantial portion of its Bitcoin holdings to an offline device, which will be securely stored in a physical vault within the country.

“We’ve decided to transfer a big chunk of our Bitcoin to a cold wallet and store that cold wallet in a physical vault within our national territory,” Bukele, who was re-elected last month for a second term, stated  in a post on X. “It’s not much, but it’s honest work.”

In September 2021, El Salvador made history by becoming the first country  to adopt Bitcoin as legal tender, placing it on equal footing with the US dollar. Concerning the initiative to transfer a significant portion of the country’s Bitcoin assets to an offline wallet, President Nayib Bukele remarked, “It’s not much, but it’s honest work.”

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