El Salvador Drops Bitcoin as Legal Tender: The Rise and Fall of a Crypto Experiment
- Why Did El Salvador Remove Bitcoin’s Legal Tender Status?
- What Went Wrong with Bitcoin in El Salvador?
- How Did the IMF Influence the Decision?
- Will El Salvador Still Hold Bitcoin Reserves?
- What’s Next for Crypto in El Salvador?
- Key Takeaways from El Salvador’s Bitcoin Experiment
- FAQs: El Salvador’s Bitcoin Rollback
El Salvador has officially reversed its groundbreaking 2021 decision to adopt bitcoin as legal tender, bowing to IMF pressure. While the move initially brought global attention and tourism, widespread skepticism, technical hurdles, and volatility led to its failure. Only 8% of Salvadorans used Bitcoin by 2024, and businesses struggled with adoption. The government retains Bitcoin reserves but no longer mandates its acceptance. Here’s the full story of this bold but flawed economic gamble.
Why Did El Salvador Remove Bitcoin’s Legal Tender Status?
In 2021, El Salvador made headlines as the first country to adopt Bitcoin as legal tender, a move championed by President Nayib Bukele. Fast forward to 2024, and the experiment has collapsed. The reversal came after the IMF tied a $1.4 billion loan to the condition that Bitcoin’s mandatory acceptance be scrapped. The Central American University reported that 92% of Salvadorans avoided Bitcoin transactions, citing complexity and volatility. Even the government’s Chivo wallet faced hacking and technical issues, eroding trust further.
What Went Wrong with Bitcoin in El Salvador?
Bukele’s vision was ambitious: bank the unbanked (70% of the population) and attract crypto tourism. But reality bit hard. Merchants hated the volatility—imagine pricing a coffee in Bitcoin only for its dollar value to swing 10% by noon. The Chivo wallet’s $30 sign-up bonus wasn’t enough to offset fears. "I lost money trying to use it," admitted Juana Henríquez, a nurse. Even Bitcoin City, a promised high-tech hub powered by volcanic energy, remains a pipe dream.
How Did the IMF Influence the Decision?
The IMF’s loan terms were clear: ditch Bitcoin’s compulsory status or lose the cash. El Salvador’s dollarized economy made Bitcoin redundant—why force businesses to accept a risky asset when the USD works fine? The reformed law now states Bitcoin is "optional," though confusingly still calls it "legal tender." Economist Carlos Acevedo calls this "a monstrosity." Taxes must now be paid only in dollars, and the Chivo wallet’s state backing is being phased out.
Will El Salvador Still Hold Bitcoin Reserves?
Oddly, yes. Despite the policy U-turn, the government holds 6,050 BTC (worth ~$634 million as of 2024) and continues buying. Ambassador Milena Mayorga insists this is "adapting to circumstances." Bukele, a vocal TRUMP supporter, predicts a crypto boom under a potential Trump presidency. Critics demand transparency, though—public funds shouldn’t gamble on speculative assets.
What’s Next for Crypto in El Salvador?
Bitcoin isn’t banned—it’s just no longer forced on anyone. Berlin and El Zonte remain crypto hotspots, but mostly for foreigners. The BTCC team notes that without mass adoption, Bitcoin’s role is now niche. For Salvadorans, the lesson is clear: stick to dollars. As economist Rafael Lemus puts it, "The government wanted to force it, and it didn’t work."
Key Takeaways from El Salvador’s Bitcoin Experiment
- Adoption Failure: 92% rejection rate by 2024.
- IMF Pressure: $1.4 billion loan hinged on demoting Bitcoin.
- Volatility Woes: Merchants couldn’t handle price swings.
- Government Paradox: Still hoarding BTC while abandoning the policy.
FAQs: El Salvador’s Bitcoin Rollback
Is Bitcoin still legal in El Salvador?
Yes, but only as a voluntary payment method. Businesses can refuse it.
Did the Chivo wallet fail?
Largely. Hacks and glitches made it unpopular despite $30 user incentives.
Will Bitcoin City ever be built?
Unlikely. The project stalled, and the government’s focus has shifted.
How much Bitcoin does El Salvador own?
6,050 BTC (~$634 million), per the National Bitcoin Office.
