El Salvador's Bitcoin Dilemma: A Troubling Reality

El Salvador, once seen as a global leader in bitcoin adoption, is facing a troubling reality as only 11% of registered businesses are active. While President Bukele continues to purchase BTC, the legal framework is changing, international organizations are applying pressure, and actual usage is stagnating. The situation is critical, with bitcoin's influence weighing heavily on the nation.

The challenges of the Salvadoran bitcoin model are evident. Out of 181 registered bitcoin providers, only 20 are currently operational, indicating that a staggering 89% are inactive. Data from the Central Bank of El Salvador reveals that 161 providers fail to meet the requirements of Bitcoin Law, including regulations on cybersecurity, anti-money laundering, and asset transparency. Many businesses overlook the stringent legal criteria, such as those pertaining to financial transparency and data protection. While the government-supported Chivo Wallet is an exception, the majority of businesses struggle to comply with regulations, highlighting the gap between ambition and reality in bitcoin adoption.

On March 3, 2025, the IMF instructed El Salvador to diminish its engagement with bitcoin as part of a $1.4 billion loan agreement, which led to the abandonment of the requirement to recognize bitcoin as legal tender. Despite this, the Salvadoran government continues to acquire bitcoin, creating a contradiction with IMF stipulations. The country still holds 6,100 BTC, valued at over $500 million, a risky asset that may lead to problems if prices fall.

The paradox of bitcoin's adoption in El Salvador is striking. Even though bitcoin is officially legal tender, its practical usage is limited. Fewer than 10% of Salvadorans have adopted the Chivo Wallet, the government’s initiative for bitcoin access. Reports from 2022 show that over 60% of users who received a $30 bonus did not even use the app. Therefore, the actual economic impact of bitcoin remains minimal. Areas like Bitcoin Beach, once thought to be models of a bitcoin-driven economy, are experiencing rapid gentrification, and local residents have not significantly incorporated bitcoin into their transactions. Instead, stablecoins like Tether are becoming increasingly important for everyday exchanges.