On the morning of February 2nd, Beijing time, while the Chinese-speaking region was still hoping for the "Lunar New Year's Eve welcoming the God of Wealth," a news about "El Salvador has canceled the legal tender status of Bit" began to spread rapidly, causing the market to plummet.
The OKX market shows that BTC fell below the $100,000 mark, with a low of 99,026.5 USDT; ETH hit a low of 3,068.1 USDT; SOL once fell to 206.69 USDT.
As the first country to adopt Bit as legal tender, El Salvador's strong support for Bit was once seen as a sign of the cryptocurrency's mainstream adoption. If the "legal tender status" is now lost, it is naturally a heavy blow to the mainstream of the entire industry... But is this really the case? Has El Salvador really changed its attitude towards Bit? We will reveal these answers in the following text.
Reasons for the Change
In 2021, under the strong support of the crypto-friendly President Nayib Bukele, El Salvador became the first country in human history to adopt Bit as legal tender.
Subsequently, El Salvador required that all commodity prices in the country could be expressed in Bit; any economic entity must accept Bit payments; Bit transactions would not be subject to capital gains tax, and taxes could be paid in cryptocurrencies.
However, El Salvador's radical strategy was strongly opposed by the International Monetary Fund (IMF).
The IMF is an international organization established in Washington on December 27, 1945, based on the Articles of Agreement of the International Monetary Fund signed at the Bretton Woods Conference in July 1944. The IMF and the World Bank were established simultaneously and are the two major financial institutions in the world, responsible for monitoring exchange rates and trade conditions in various countries, providing technical and financial assistance, and ensuring the normal operation of the global financial system.
In the view of the IMF, El Salvador's adoption of Bit as legal tender poses "extremely high risks" and may lead to "a series of macroeconomic, financial and legal problems." Therefore, for more than two years, the IMF has been putting pressure on El Salvador to mitigate the relevant risks.
Returning to the recent timeline, as El Salvador urgently needs a $1.4 billion loan from the IMF to advance government reforms, but the IMF still requires El Salvador to amend the Bit-related laws by the end of January at the latest, therefore, on January 29, the El Salvador Congress (mainly composed of members of Nayib Bukele's New Ideas party) quickly approved a bill to amend the Bit law - the so-called "cancellation of Bit's legal tender status" - with 55 votes in favor and 2 against, at the personal request of President Nayib Bukele.
Core Controversy: Time and Expression
Note that there are two key points that need to be emphasized and explained.
The first is the timing of the passage of this bill amendment. As mentioned earlier, Nayib Bukele's proposal was passed on January 29, just 4 days ago. In fact, major media outlets like Reuters had tracked and reported on this event at the time, but it did not attract much market attention.
Going back further in the historical reports, it can be found that the IMF website had already issued a relevant statement on this matter on December 18, 2024. This statement was jointly issued by the IMF Western Hemisphere Department Deputy Director Luis Cubeddu and the leader of the El Salvador delegation Raphael Espinoza after the IMF working team's discussions in El Salvador from December 5 to 14, 2024 - in other words, El Salvador and the IMF had already reached a consensus last December to amend the Bit law.
So why is this event being re-heated and causing a market crash today? The answer lies in the second key point - "expression".
Looking back at the statements made by the IMF and El Salvador in the joint statement:
According to IMF policies, the potential risks of Bit-related projects will be greatly reduced. The legal reform will make the private sector voluntarily accept Bit. For the public sector, participation in Bit-related economic activities and the trading and purchase of Bit will be restricted; taxes can only be paid in US dollars; the government's participation in the Chivo cryptocurrency wallet will be gradually phased out. The transparency, regulation and supervision of digital assets will be strengthened to safeguard financial stability, consumer and investor protection, and financial integrity.
The day after the statement was released, Stacy Herbert, the director of El Salvador's National Bit Office (ONBTC), also responded on X:
Bit will remain legal tender.
In Reuters' reporting, the expression used was:
The El Salvador Congress accelerated Bit reforms after reaching an agreement with the IMF... Ruling party lawmaker Elisa Rosales said the reform was to ensure Bit's "permanent status as legal tender" and promote its "actual adoption".
It can be seen that the IMF and El Salvador only emphasized the term "reform" in the joint statement, without explicitly stating that "El Salvador will cancel the legal tender status of Bit," and the Reuters report also emphasized "reform," and officials and lawmakers like Stacy Herbert and Elisa Rosales from El Salvador responded that "Bit will continue to be legal tender".
The reason why this event is being re-heated and causing a market crash today is that some media noticed the report of the Spanish media EL PAIS - the original title of which was "Nayib Bukele changes his mind and cancels the legal tender status of Bit in El Salvador" - which accelerated the secondary dissemination of this event.
As a news professional, I personally find it difficult to criticize EL PAIS's expression on this. Among the different expressions about the same event, each party seems to have its own reasons:
- The IMF's goal is to weaken El Salvador's involvement with Bit, and this goal has been achieved through the amendment of the law, so the specific expression is not important;
- El Salvador seems to be hoping to handle this event in a low-key manner (after all, it is an item personally promoted by the current president), so apart from officials like Stacy Herbert and Elisa Rosales, President Nayib Bukele and the main government departments have not publicly responded;
- Reuters' report follows the rigorous expression style of traditional media, only using the content of the official statement and actual interviews;
- Although EL PAIS has a hint of "clickbait," under the reform of "no longer mandatory to accept" and "cannot be used as a means of tax payment," Bit in El Salvador also no longer has the attributes of traditional legal tender, and this summary does not seem to be too much...
Has El Salvador "Changed Its Mind"?
Rather than getting bogged down in whether El Salvador has actually canceled the legal tender status of Bit, another question seems easier to answer - Has El Salvador really changed its attitude towards Bit?
We can clearly give a negative answer.
Judging from the progress of the Bit reform in El Salvador, after being under pressure for two years, the reason why El Salvador chose to compromise with the IMF's final deadline was most likely due to the need for a $1.4 billion loan.
More importantly, from the IMF's official statement, it can be known that the final negotiations between the two parties took place in December 2024, and the statement was made on December 18. Just one day later, ONBTC director Stacy Herbert announced that El Salvador will continue to purchase Bit as its strategic Bit reserve, and may do so at a faster pace.
Since then, El Salvador has indeed accelerated the pace of Bit purchases, and has made multiple buy-in operations after the law reform on January 29. ONBTC official data shows that El Salvador's strategic Bit reserve currently holds a total of 6,055 Bit.
John Dennehy, the founder of the Bit startup Mi Primer Bit based in El Salvador, said, "As far as I know, El Salvador's Bit reserve plan will not be affected by the IMF agreement, at least not at the beginning."
In summary, we can describe the current situation in a very simple sentence - El Salvador bowed to the pressure of the IMF, but found a new way.
