The Bitcoin Experiment

El Salvador made history in 2021 by becoming the first country to adopt Bitcoin as legal tender, requiring businesses to accept it for transactions. To support this initiative, the government introduced the Chivo wallet, a state-backed app that facilitated Bitcoin transactions and even offered a $30 incentive for users. However, the U.S. dollar remained in circulation as the primary currency, giving citizens the choice to use either.

Despite the global crypto community’s enthusiasm, many Salvadorans were skeptical. Polls showed that 70% opposed the law, and only 15% trusted Bitcoin. Protests erupted as concerns grew over Bitcoin’s volatility and the lack of infrastructure for widespread adoption. Many merchants lacked the necessary technology to process Bitcoin payments, and a significant portion of the population still relied on cash.

The Outcomes of Bitcoin Adoption

Over nearly four years, the Bitcoin law had mixed results:

• Tourism Growth: El Salvador saw a 20% increase in tourist arrivals by 2024, driven by curiosity surrounding its Bitcoin experiment.

• Limited Financial Inclusion: The initiative failed to bring more people into the banking system. By 2024, 92% of Salvadorans reported not using Bitcoin for transactions.

• Minimal Impact on Remittances: Bitcoin was expected to streamline cross-border payments, yet only 1.3% of remittances were made using it in 2023.

• Business Reluctance: Most businesses continued transacting in U.S. dollars. A 2022 survey found that 86% had never processed a Bitcoin payment.

• Trust Issues: The Chivo wallet faced security breaches, further discouraging adoption. Additionally, Bitcoin’s steep price drop in 2022 made the public wary of its stability.

The End of the Experiment

The International Monetary Fund (IMF) had urged El Salvador to revise its Bitcoin policy since 2022. On January 30, 2025, the Salvadoran Congress finally agreed to remove Bitcoin’s legal tender status in exchange for a $1.4 billion loan. Under the new rules:

• Businesses are no longer required to accept Bitcoin.

• The government will stop collecting taxes and payments in Bitcoin.

• Public sector involvement in Bitcoin-related transactions will be significantly reduced.

While Bitcoin remains legal for trade, its role in the country will diminish over the next three years as the IMF loan conditions take effect.

The Government’s Ongoing Crypto Investments

Despite scaling back its Bitcoin policy, El Salvador’s government continues to invest in cryptocurrency. On February 4, 2025, it purchased 12 more Bitcoin, bringing its total holdings to 6,068 BTC, currently valued at over $585 million. This suggests that while Bitcoin is losing its official status, the government still sees it as a long-term treasury asset.

El Salvador’s experiment with Bitcoin was ambitious, but challenges such as volatility, technical barriers, and public skepticism ultimately led to its decline as legal tender.