What Happened?
El Salvador passed the Investment Banking Law, allowing capital-rich investment banks to legally hold Bitcoin and provide crypto financial services to high-net-worth “sophisticated investors,” paving the way for the entry of large capital on a compliant basis.
The ruling party in El Salvador utilized its absolute majority in Congress to pass significant constitutional and electoral reform bills, extending the presidential term from five years to six years and abolishing the two-round runoff system. This move sparked strong criticism from opposition lawmakers, who pessimistically stated that “Salvadoran democracy is dead,” expressing concerns that the country is heading toward a one-party dictatorship.
This action signifies a strategic shift in El Salvador’s Bitcoin policy, now focusing more pragmatically on attracting large institutions and foreign capital, with the intent of transforming the nation into a professional “crypto financial center.”
Despite the groundbreaking nature of this legislation, it has also drawn criticism for allegedly only “benefiting the rich,” and the financial transparency of the Salvadoran government continues to be questioned. This move is a high-risk gamble for El Salvador to become a global crypto financial hub, with its success or failure being closely watched worldwide.
Core of the New Law: Focusing on Institutions and Sophisticated Investors
El Salvador has taken another critical step in making Bitcoin a part of its national financial system. Following the Congress’s approval of the Investment Banking Law on August 7, the country has officially opened the door for regulated Bitcoin investment banks, representing a shift in El Salvador’s cryptocurrency strategy from early mass adoption to attracting larger institutional capital.
According to the newly passed Investment Banking Law, investment banks will be subject to a regulatory framework different from that of traditional commercial banks. The law allows financial institutions with a capital of at least $50 million to apply to become investment banks.
Once qualified, these banks can apply for licenses as digital asset service providers (PSAD), legally holding Bitcoin (BTC) and other digital assets on their balance sheets. More importantly, they will be able to offer cryptocurrency-denominated financial services and products to “sophisticated investors.”
Juan Carlos Reyes from the El Salvador Digital Assets Commission (CNAD) explained that “sophisticated investors” are equivalent to “qualified investors” in the United States, requiring liquid assets (which can include Bitcoin) to exceed $250,000.
This law is quite unique; in simple terms, the Salvadoran government is establishing a “special zone” with different rules alongside the traditional financial system.
If traditional commercial banks are like a “bus,” whose mission is to safely and steadily deliver all passengers to their destination without recklessly speeding or taking risks, then El Salvador’s investment banks are akin to an “F1 racing team.” Their existence is aimed at pursuing extreme performance and speed, utilizing the most advanced yet potentially unstable technologies. Thus, only professional drivers can participate, while ordinary passengers are prohibited from boarding.
Reyes added, “Through the PSAD license, a bank can choose to completely transform into a Bitcoin bank.”
The Salvadoran government has cleverly “isolated the risks.” It has not recklessly allowed all banks to engage with high-risk cryptocurrencies, but rather established a new, high-threshold regulatory framework. This approach can attract international hot money and crypto capital seeking high returns, promoting financial innovation while ensuring the safety of ordinary people’s deposits in traditional commercial banks, thus maintaining overall financial stability in society.
Strategic Shift: From Retail Popularization to Institutional Investment
This move highlights a significant transformation in El Salvador’s national strategy. This is not merely a regulation; it represents the formal launch of El Salvador’s “Bitcoin Experiment 2.0.”
Its significance lies in attempting to answer a question that the global financial community is observing: Can cryptocurrencies be safely and compliantly integrated into a country’s mainstream financial system?
Although El Salvador mandated all businesses to accept Bitcoin as a payment method in 2021, the actual adoption rate among the general public has been lower than expected. Data shows that only 1% of international remittances are conducted through crypto assets, and only one-fifth of Salvadorans have ever used cryptocurrencies.
To secure a $1.4 billion loan from the International Monetary Fund (IMF) by early 2025, the Salvadoran government has withdrawn some of its earlier mandatory retail adoption policies. Now, the passage of the new law clearly indicates that the country’s focus has shifted from widespread adoption to attracting large institutional investors, hoping to establish El Salvador as an emerging regional financial center.
Controversy and International Cooperation Coexist
However, not everyone views this policy favorably. Critics argue that El Salvador’s Bitcoin policy has not genuinely benefited ordinary people, with the main beneficiaries still being the government and large enterprises.
Furthermore, there is controversy surrounding the government’s ongoing Bitcoin purchases. Despite President Nayib Bukele’s office continuously claiming to “buy one Bitcoin daily,” a report from the IMF in July cited the Salvadoran Central Bank president and finance minister, stating that the country has not purchased any new Bitcoin since signing the loan agreement.
The report explained that the so-called daily accumulation is actually a consolidation of Bitcoin already held in various government wallets into a central “reserve” wallet, rather than new acquisitions.
In addition, the ruling party, Nuevas Ideas, took advantage of its absolute majority in Congress to pass significant constitutional and electoral reform bills in early August, paving the way for President Bukele’s indefinite re-election.
This reform extends the presidential term from five years to six years and abolishes the two-round runoff system. Although the Salvadoran constitution originally prohibited re-election, Bukele won his second term through a controversial ruling by the Supreme Court, led by his allies, in 2021. The new law fully legalizes this action.
This move has drawn sharp criticism from opposition lawmakers, who pessimistically state that “Salvadoran democracy is dead,” fearing that the country is heading toward a one-party dictatorship. However, Bukele enjoys high support domestically due to his strong anti-gang policies, which is a key background for the ease with which this constitutional amendment passed.
Despite domestic controversies, El Salvador is actively seeking international cooperation to promote its cryptocurrency agenda. President Bukele recently met with Pakistan’s Minister of State for Crypto and Blockchain, sharing strategies for national-level Bitcoin adoption. Additionally, on July 30, the El Salvador Digital Assets Commission signed a memorandum with Bolivia’s Central Bank, which is facing a dollar shortage crisis, aiming to promote cryptocurrencies as alternatives to traditional fiat currencies and explore how to use technology and new financial tools to foster national development.
The significance of the Investment Banking Law lies in upgrading El Salvador’s Bitcoin experiment from a “currency” social experiment to a national-level strategy concerning “financial infrastructure.”
Its success or failure will become an important historical case. If it successfully attracts a large amount of institutional capital and effectively manages risks, it will prove that a small country can find a unique ecological niche in the global financial landscape using emerging technologies. Conversely, if it fails, it will serve as a cautionary tale for other countries.
Regardless, this places El Salvador in a notable observational position on the global financial innovation map. However, its actual impact on the overall economy and ordinary citizens, as well as the transparency of government policies, will remain focal points of continued international attention.
References: Cointelegraph, The Block