El Salvador Enacts Law Permitting Investment Banks to Hold Bitcoin and Serve Qualified Clients

El Salvador has enacted new legislation granting investment banks the ability to hold bitcoin and provide services to qualified clients. The measure is part of the country’s ongoing effort to expand its bitcoin-focused financial sector following its adoption of bitcoin as legal tender in 2021.

The new law permits licensed investment banks within El Salvador to custody bitcoin on behalf of clients, manage bitcoin-based investment products, and engage in transactions denominated in bitcoin for eligible individuals and entities classified as qualified investors under the country’s financial regulations. These institutions will be able to offer expanded cryptocurrency-related banking services that go beyond what is currently permitted under standard banking licenses.

Authorities intend the legal change to attract high-net-worth individuals and institutional investors to El Salvador’s financial markets, positioning the country as a hub for cryptocurrency banking. The legislation outlines operational requirements for investment banks dealing in bitcoin, including adherence to anti-money laundering and know-your-customer protocols.

The announcement coincided with continued strength in the bitcoin market, where the price was reported near $120,000. The government expects that enabling investment banks to hold and handle bitcoin will increase foreign investment inflows and further integrate the cryptocurrency into the country’s economy.

This initiative underscores El Salvador’s commitment to deepening its integration with global cryptocurrency markets and enhancing the scope of bitcoin’s usage in formal financial services.

El Salvador has announced plans to establish Bitcoin-only banks as part of President Nayib Bukele’s ongoing Bitcoin-focused economic strategy. The proposal was revealed via a post on X, aiming to deepen the integration of Bitcoin into the country’s financial system.

This initiative follows Bukele’s 2024 proposal for a Bank for Private Investment (BPI), which would allow banks to operate in both Bitcoin (BTC) and U.S. dollars under less stringent regulations. Ambassador to the U.S., Milena Mayorga, explained that the BPI framework would give banks more flexibility, including fewer restrictions on international partnerships and lending limits.

Under the plan, new BPIs would need a minimum share capital of $50 million and at least two shareholders. These institutions could also be registered as digital asset managers and Bitcoin service providers. The proposal is currently under review by the Technology, Tourism, and Investment Commission.

Supporters of the plan include Max Keiser, Bukele’s senior Bitcoin advisor, who believes it could boost the nation’s GDP, and Ark Investment CEO Cathie Wood, who predicts economic growth from adopting BPIs. However, international bodies such as the International Monetary Fund (IMF) have warned about the risks of Bitcoin’s volatility and consumer protection issues. The IMF, which has a $1.4 billion credit agreement with El Salvador, stated that the country has committed to not making new Bitcoin purchases, clarifying that recent wallet activity was consolidation instead of new acquisitions.

El Salvador’s Bitcoin holdings have been valued at up to $767 million, and the government continues to promote Bitcoin-related projects, including the state-backed Chivo wallet and geothermal-powered Bitcoin mining operations.

While details of the regulatory framework for Bitcoin banks remain incomplete, officials emphasize that the project could expand financial inclusion in a country where nearly 70% of the population is unbanked. Further government updates on the plan are expected soon.