El Salvador plans to introduce regulatory framework for all crypto assets

According to a policy document published by the National Assembly of El Salvador, the new law would establish a regulatory body for overseeing operations involving all blockchain-based assets.

The cityscape of San Salvador, the capital city of El Salvador, with El Picacho volcano peak in the background. Image: Getty Images

Following its experiment with Bitcoin as legal tender alongside the US dollar, El Salvador is now working on a draft bill that will welcome the broader crypto industry. The new legislation, presented by the country's Minister of Economy, Maria Luisa Hayem Breve, calls for establishing a National Digital Assets Commission that would "promote the efficient development of the digital asset market and protect the interests of acquirers."

In a Twitter thread, crypto lawyer and Bitcoin educator Ana Ojeda Caracas summarized the key points of the draft. As per Twitter translation, the main features of the 33-page bill are:

  • Creation of a registry of digital providers.
  • Legalization of cryptos.
  • Inclusion of a legal definition of stablecoins and tokens.
  • Regulation of public offerings of digital assets.
  • Tax exemption in some cases.

The new government agency is also supposed to “create a legal framework to transfer digital assets that are used in public offerings in El Salvador, as well as regulate the requirements and obligations of issuers and providers of digital assets.”

The wording of the bill — namely the “public offerings” part — may indicate that El Salvador may be paving the way for issuing its long-awaited Bitcoin-backed bonds. Initially, the bond sale was expected to take place between March 15 and March 20, but the launch was delayed due to the war between Ukraine and Russia.

According to the Financial Times report, the 10-year “volcano bonds” with an annual coupon of 6.5% are expected to raise $1 billion to support the country’s struggling economy. Half of the funds coming from the bond sale will go to accumulate more Bitcoin, while the other half will be used to finance “Bitcoin City” powered by geothermal energy from the nearby volcano.

President Nayib Bukele laid his vision for his crypto metropolis as tax heaven for miners and cryptocurrency investors — but the futuristic project was put on indefinite hiatus as crypto market tumbled.

El Salvador, a small Central American nation of 6.5 million, found itself in a dire financial situation. As reported by The Guardian, in January the country must pay €667m ($688m) in coupon payments for its amortized Eurobonds. And his controversial decision to make Bitcoin a legal tender triggered heavy criticism from the IMF. The institution urged El Salvador’s government to "narrow the scope of the Bitcoin law by removing Bitcoin's legal tender status," and warned that Bitcoin adoption may make it difficult for the country to get new loans.

More than a year after Bukele’s crypto experiment, about 77% of Salvadorans say that Bitcoin adoption was a failure. According to the poll by the University of Central America (UCA), Bitcoin remains “the government's most unpopular measure.” At the same time, Bukele’s approval rating stays high at 75.9 percent, mostly due to his heavy-hand approach to gang violence.