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Bitcoin rises as El Salvador set make it legal tender on 7 September

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·3-min read
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The Central American country plans to use bitcoin as a parallel legal tender alongside the US dollar, which has also been touted as a remittance currency for Salvadorans overseas. Photo: Jose Cabezas/Reuters
The Central American country plans to use bitcoin as a parallel legal tender alongside the US dollar, which has also been touted as a remittance currency for Salvadorans overseas. Photo: Jose Cabezas/Reuters

The price of Bitcoin (BTC-USD) rose for a third consecutive day on Friday after El Salvador revealed that it would officiate the cryptocurrency as legal tender on 7 September.

The Central American country plans to use bitcoin as a parallel legal tender alongside the US dollar, which has also been touted as a remittance currency for Salvadorans overseas.

It announced that it would give every citizen $30 (£21.60) in bitcoin via a Chivo e-wallet, using facial recognition.

Bitcoin, the world’s most valuable cryptocurrency, was up 3.8% on Friday at $34,157 on the back of the news, helping to boost the wider market.

Most other coins in the top 20 by market value were up between 2% and 17% over the same 24-hour period, according to CoinDesk data, with Elon Musk's favourite dogecoin (DOGE-USD) posting the strongest gains, trading 13% higher.

Bitcoin has managed to eke out gains for three days straight this week. Chart: Yahoo Finance
Bitcoin has managed to eke out gains for three days straight this week. Chart: Yahoo Finance

It came as Athena Bitcoin, an operator of bitcoin ATMs throughout the Americas, is also poised to set up 1,500 new cash-to-crypto machines in El Salvador.

The move has been backed by a $1m funding to help get operations underway, including the hiring of new staff and opening an office ahead of the country’s proposed bitcoin law. The crypto ATMs are seen as a way for people to interact with the physical world, particularly for those who are not well-versed in cryptocurrencies.

Read more: Could El Salvador's bitcoin adoption trigger a domino effect in Latin America?

El Salvador has still pushed ahead with its plan despite the World Bank rejecting its request for help with the implementation of the cryptocurrency as legal tender. The World Bank earlier this month said it could not assist El Salvador due to the environmental impact of bitcoin mining, and transparency drawbacks.

Bitcoin mining has previously been shown to use more energy than that of small nations due to the high levels of computer processing power needed.

This same reason was behind Musk’s U-turn on the coin. He tweeted weeks ago that his electric car company would resume accepting bitcoin once it becomes more environmentally friendly.

Watch: What is bitcoin?

Cryptos have been boosted by institutional support recently. As well as Tesla (TSLA), several organisations, including MicroStrategy (MSTR), have invested billions of dollars into cryptocurrencies and traditional financial firms like PayPal (PYPL) and Goldman Sachs (GS) started to handle the asset on behalf of clients.

However, according to a Bank of America survey, 81% of fund managers say bitcoin is still a bubble.

Cryptos have faced staunch opposition from governments and central banks which have been keen to regulate digital currencies.

Read more: Bitcoin crashes to $32,000 on China, Fed fears but MicroStrategy keeps buying

Bank of England (BoE) governor Andrew Bailey said that digital currencies will not get a regulatory "free pass" in the future, despite their potential for innovation, doubling down on his earlier position that bitcoin is not money, and has no intrinsic value because it has no backing.

Meanwhile, the UK's Financial Conduct Authority (FCA) has also previously warned that if consumers invest in cryptoassets "they should be prepared to lose all their money".

Bitcoin, which had risen higher than $60,000 in April, has also fallen from grace amid a crackdown in China, which has taken steps to restrict Bitcoin mining and trading within its territory.

China released a statement on Monday relaying how it had told several major lenders and banks to "comprehensively investigate and identify" cryptocurrency exchanges and dealers in order to aid efforts to restrict trading.

Watch: What are the risks of investing in cryptocurrency?

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