El Salvador Greenlights Bitcoin Banks to Attract Institutional Capital

• A commission in El Salvador approves a bill enabling private investment banks to hold Bitcoin and cater to sophisticated investors.
• The framework targets institutional capital and positions the nation as a crypto investment hub.

On August 10, 2025, Cointelegraph reported that El Salvador advanced a bill for its Bank for Private Investment (BPI) Law, establishing a framework for private investment banks that target institutional investors. The proposed legislation allows these investment banks to hold digital assets, including Bitcoin, on their balance sheets and offer services under a Digital Asset Service Provider (PSAD) license. This framework specifically targets sophisticated investors, a group similar to the accredited investor category in the United States.

A PSAD license enables these institutions to function as banks that handle digital assets. Juan Carlos Reyes, president of El Salvador’s Commission of Digital Assets (CNAD), explained that the banks can operate using both legal tender, such as the U.S. dollar, and Bitcoin, and stablecoins. Integrating Bitcoin and other digital assets into the nation's regulated financial system aims to foster significant institutional adoption and provide a robust infrastructure for digital finance.

The proposal positions El Salvador as an emerging financial hub for digital assets and aims to draw significant foreign investment. Advocates argue the law's regulatory clarity provides a vital step for attracting institutional capital, which in turn will bolster the broader Salvadoran economy. This initiative fits into El Salvador's longer-term Bitcoin strategy, which it launched by adopting Bitcoin as legal tender in 2021, signaling the nation's commitment to redefining its financial system.

However, critics claim such measures primarily benefit the government and major corporations while neglecting the broader population. These concerns echo earlier controversies surrounding the August 2025 proposal to create a Bank for Private Investment (BPI), which suggested relaxing restrictions compared to traditional banks, including a proposed capital minimum of $50 million.

This regulatory shift coincides with growing global interest in Bitcoin-related financial innovations. El Salvador has intensified its international collaboration in the digital assets space; for example, it signed agreements with countries like Argentina for collaboration and information exchange on digital assets regulation. These efforts illustrate a strategic pivot toward fostering South-South partnerships in digital finance.

Despite its potential benefits, concerns persist about the risks of this legislative approach. The International Monetary Fund (IMF) has previously warned that Bitcoin's volatility poses risks to economic and financial stability. How El Salvador mitigates these risks will ultimately determine the success of its initiatives and their impact on the nation's economic landscape.

According to CoinMarketCap, as of 19:15 UTC on August 9, 2025, Bitcoin was trading at $116,684.033, accounting for 58.98% of the global cryptocurrency market share.