New Panama Law Eliminates Bitcoin Cap. Gains, Making BTC De Facto Legal Tender

On April 28th, 2022, Panama passed a broad-reaching law intended to overhaul the ‘crypto’ industry in the nation. 

While the new law doesn’t recognize Bitcoin as legal tender as it in nearby El Salvador and in the Central African Republic earlier this week, Panama did legally recognize Bitcoin and other ‘cryptos’ in a move to provide common-sense regulatory clarity for the fledgling industry.

Panamanian Congressman Gabriel Silva stated in an interview dated April 28, 2022, that the legislation was forwarded with the intention to transform Panama into a regional technology hub.

While this move might prove controversial to some Bitcoiners as the legislation extends legal recognition to the ‘crypto’ industry broadly, as similarly controversial when the Central African Republic also extended some legal recognition to ‘cryptos’ other than Bitcoin, zooming out, this development in Panama can only be seen as positive for the adoption of Bitcoin. 

Samson Mow, current CEO of ‘JAN 3,’ which is focused on nation-state Bitcoin adoption has observed that removing capital gains taxes on Bitcoin when cashing out has the effect of making it De Facto legal tender since consumers will be able to spend Bitcoin for day-to-day purchases without incurring capital gains taxes on every purchase. 

Mow played a critical role in such an instance of De Facto adoption earlier this year when the Swiss city of Lugano removed capital gains taxes from Bitcoin, and also the USDT ‘Tether’ stablecoin. The official legal tender in Lugano remains the Swiss franc, as the municipal government did/does not have the legal authority to recognize Bitcoin as an official legal tender. 

While it’s not clear why Panama didn’t move to formally recognize Bitcoin as legal tender, this appears to be the first example of a nation-state following the legal backdoor route described by Mow as a way to effectively make the currency legal tender, so the move by Panama should be recognized as an incredible victory in the fight for financial freedom in any case.

That said, it has been pointed out by some commentators that removing Bitcoin from capital gains tax is perhaps a more freedom/libertarian approach, as it allows the adoption of Bitcoin to spread in a more natural manner.

The legislation still must be signed into law by the Panamanian President, but this is expected to occur in short order.