El Salvador made history in 2021 as the first country to adopt Bitcoin as legal tender. However, the nation has now reversed its decision after considerable pressure from the International Monetary Fund (IMF). What prompted this shift, and what were the key outcomes of this almost four-year-long Bitcoin experiment?
Table of Contents
- The Bitcoin Experiment in El Salvador
- What Were the Results of Bitcoin as Legal Tender?
- The End of El Salvador’s Bitcoin Experiment
The Bitcoin Experiment in El Salvador
In 2021, El Salvador passed a law making Bitcoin a legal tender, meaning it was not just accepted but required for transactions. The government mandated that businesses accept Bitcoin for goods and services, and it started collecting payments like taxes and fees in Bitcoin as well.
To support this transition, El Salvador launched the Chivo wallet, a government-backed mobile app to facilitate Bitcoin transactions. The app offered users the ability to send, receive, and store Bitcoin, with a $30 Bitcoin incentive for those who signed up.
Despite the adoption of Bitcoin, the U.S. dollar remained the country’s official currency, and Salvadorans were still free to use it. A 2021 poll revealed that only 15% of the population trusted Bitcoin, while 70% of respondents opposed the new law. This shows a significant divide between government-backed initiatives and the public’s willingness to embrace Bitcoin.
While President Nayib Bukele made strong efforts to promote Bitcoin, including media campaigns, the law faced strong resistance from many Salvadorans, who voiced their concerns through protests. Many merchants, especially in rural areas, lacked the infrastructure to accept Bitcoin, while others were hesitant due to the digital currency’s volatility.
What Were the Results of Bitcoin as Legal Tender?
Over the nearly four-year experiment, the Bitcoin law had mixed results. Some positives did emerge, though they were limited.
One of the more noticeable successes was a surge in tourism. Bitcoin adoption brought international attention, and as a result, tourist arrivals in 2024 increased by 20% compared to the previous year, continuing a growth trend from prior years.
However, the broader impact of Bitcoin adoption in El Salvador was largely negative. Bitcoin’s extreme price volatility made it ineffective as a hedge against inflation, which many had hoped for. Additionally, the Chivo wallet faced multiple technical issues, including hacking incidents, which contributed to the lack of trust in the system and limited the app’s adoption.
Despite the government’s best efforts, Bitcoin failed to improve financial inclusion. In 2021, around 70% of Salvadorans were unbanked, and most people had little to no experience with cryptocurrency. By 2024, reports showed that 92% of Salvadorans had never used Bitcoin for transactions. Even efforts to use Bitcoin for remittances yielded poor results—only 1.3% of remittances were made using Bitcoin in 2023, and a 2022 survey revealed that 86% of businesses never engaged in Bitcoin transactions.
One of the key missteps was the timing of the Bitcoin law. The country adopted Bitcoin after a major crypto rally, and as is often the case, a downturn followed. The 2022 crypto crash made Bitcoin even more volatile, pushing many Salvadorans further away from adopting the currency.
The End of El Salvador’s Bitcoin Experiment
In 2022, the IMF began urging El Salvador to reconsider its Bitcoin adoption strategy. On January 30, 2025, El Salvador’s Congress passed a new law that effectively reversed the Bitcoin experiment. In exchange for a $1.4 billion loan from the IMF, the country agreed to remove Bitcoin’s legal tender status.
The new law stipulates that Bitcoin will no longer be accepted for tax payments, government transactions, or fees. Businesses will also have the option to refuse Bitcoin as a form of payment. While Bitcoin will still be legal for trade among Salvadorans, the requirement for businesses to accept it is lifted.
This change is part of a broader effort to address concerns about Bitcoin’s volatility and the public’s limited understanding of cryptocurrencies. The IMF loan will be disbursed over 40 months, and these new regulations will be phased in during this period, signaling a long-term decline in Bitcoin’s role in the country.
Despite this policy shift, El Salvador’s government has maintained its pro-crypto stance. On February 4, 2025, the country’s Bitcoin Office reported purchasing an additional 12 BTC for approximately $1.2 million. This brings El Salvador’s total Bitcoin holdings to 6,068 BTC, valued at over $592 million.
The government’s continued Bitcoin purchases suggest that while the country is moving away from using Bitcoin as legal tender, it is still invested in cryptocurrency for the long term.