Key takeaways

El Salvador adopted Bitcoin to lower fees and improve financial inclusion, particularly for the unbanked population.
Large businesses have embraced Bitcoin, while smaller firms and citizens are more cautious due to technical challenges and Bitcoin’s volatility.
Bitcoin’s price volatility poses a significant risk to the country’s financial stability, though El Salvador has seen substantial gains in its holdings.
While Bitcoin has brought global attention to El Salvador, international institutions like the IMF remain concerned about the economic risks.

Bitcoin as legal tender: El Salvador’s bold move

In September 2021, El Salvador became the first country to adopt Bitcoin as legal tender, a decision that shook the global financial landscape.

President Nayib Bukele’s move targeted some vital national problems, including financial inclusion and remittance fees.

More than 70% of El Salvador’s population had no access to traditional banking services, leaving many without essential economic tools. By adopting Bitcoin, the government hoped to bring more people into the financial system.

Remittances, a vital source of income for many families, also influenced this decision. With citizens receiving billions in remittances each year, the country sought to reduce the fees charged by traditional financial intermediaries.

Bitcoin offered a potential solution by enabling faster, cheaper transfers directly to recipients through platforms like the Chivo wallet, which the government rolled out to support the transition.

The Bitcoin Law made it mandatory for businesses to accept Bitcoin , although exemptions were allowed if technology wasn’t accessible. The law sparked widespread debate, with local protests against it, as many feared the cryptocurrency’s volatility.

Still, it also drew international attention, with crypto enthusiasts applauding the experiment’s boldness and global institutions like the IMF warning against its risks.

Bukele’s administration argued that Bitcoin could also turn El Salvador into a hub for foreign investment and innovation, particularly in the blockchain and cryptocurrency sectors. This ambitious bet on Bitcoin has turned El Salvador into a global test case for how cryptocurrencies might reshape national economies.

Did you know? President Nayib Bukele of El Salvador, who spearheaded the country’s adoption of Bitcoin as legal tender, was the mayor of the capital city, San Salvador, before becoming president in 2019 at the age of 37, making him one of the youngest leaders in the world.

Bitcoin’s impact on everyday life in El Salvador

Bitcoin’s introduction has had varied effects on businesses across El Salvador. Large corporations like McDonald’s, Pizza Hut and Starbucks quickly implemented Bitcoin payment systems, mainly to cater to tourists and tech enthusiasts.

Still, small businesses and street vendors have been slower in adopting the currency due to a lack of technical knowledge and the unpredictability of Bitcoin prices. Some vendors find it practical for larger purchases, but many still prefer cash for everyday transactions.

For ordinary citizens, Bitcoin’s impact has been felt in remittances and savings. Remittances, which account for 20% of the country’s GDP, were traditionally processed by intermediaries with fees as high as 10%.

Now, Salvadorans can send and receive money through Bitcoin almost instantly and at a fraction of the cost. This has been particularly beneficial for those living in rural areas with limited access to banking. However, Bitcoin’s volatility can still make savings unpredictable, and some people remain cautious.

The Chivo Wallet, the government’s official digital wallet, has made Bitcoin more accessible, offering features like instant conversions to US dollars and cash withdrawals through Bitcoin ATMs.

Indeed, over 200 ATMs are spread across the country, giving Salvadorans easy access to their digital currency. While the wallet faced some technical issues early on, it has been widely adopted. Businesses now advertise that they accept Bitcoin, though many still allow customers to choose between Bitcoin and cash.

In daily life, Bitcoin is used for a wide range of transactions. People pay for everything from meals to school fees using the Chivo Wallet. A restaurant owner in San Salvador, for example, said that about 20% of his customers pay using Bitcoin, though he immediately converts it to US dollars to avoid the risk of price fluctuations. Another example is a construction worker receiving part of his wages in Bitcoin, allowing him to experiment with saving in Bitcoin, though he also remains cautious due to its volatility.

Lastly, it’s essential to discuss the impact on banks and financial institutions in El Salvador. Banco Hipotecario, for example, started offering Bitcoin-backed loans, allowing customers to use Bitcoin as collateral while receiving US dollars. Another institution, Banco Agricola, integrated Bitcoin for payments toward loans, credit cards and merchant services, partnering with the US-based firm Flexa to facilitate the process.

Meanwhile, cross-border transactions have become more streamlined. Traditionally slow and expensive, banks like Banco Davivienda are experimenting with blockchain technology to speed up remittances. This has cut costs from an average of 5-10% per transaction to fractions of that, making remittances more affordable for the 1.6 million Salvadorans living abroad who send money home.

Indeed, adoption continues to grow, though Bitcoin’s long-term impact on everyday life is still under question.

Did you know? El Salvador’s Bitcoin adoption led to the creation of “Bitcoin Beach,” a small coastal community in El Zonte where residents began using Bitcoin even before the national rollout.

Nayib Tracker: Monitoring El Salvador’s Bitcoin holdings

The Nayib Tracker is vital for tracking El Salvador’s national Bitcoin reserves and Bukele’s investments. The website offers real-time updates on the country’s Bitcoin portfolio, providing insights into the government’s investment strategy.

Users can monitor key stats like Bitcoin’s current value, total holdings and profit/loss estimates. It also showcases Bukele’s bold bet on Bitcoin and its potential economic impact.

As of October 2024, El Salvador’s BTC portfolio reflects the following statistics:

Dollar-cost average: Approximately $43,877 per Bitcoin.
Total holdings: 5,865 BTC.
Total investment cost: Roughly $257 million.
Current portfolio value: Around $318 million.
Net gain: About a 24% increase in unrealized profits, amounting to approximately $61 million.

This demonstrates steady growth in El Salvador’s Bitcoin holdings despite market volatility.

These figures suggest that the country’s Bitcoin holdings have performed exceptionally well, yielding a substantial profit since their initial investments. Despite Bitcoin’s market volatility, El Salvador’s decision to accumulate BTC has, for now, proven to be financially advantageous.

Did you know? The Nayib Tracker was created by an anonymous developer who wanted to provide transparency around El Salvador’s Bitcoin holdings. The platform uses publicly available blockchain data to track the government’s Bitcoin transactions and portfolio performance.

Bitcoin and El Salvador: Benefits and challenges

El Salvador’s Bitcoin adoption has unlocked several economic advantages:

Financial inclusion: Empowering the unbanked with digital wallets.
Lower remittance costs: Saving families money on international transfers.
Tourism boost: Attracting crypto enthusiasts globally.
International visibility: Cementing El Salvador’s place on the crypto map.

Despite progress, challenges persist:

Market volatility: Bitcoin’s unpredictable swings threaten stability.
Local resistance: Skepticism around Bitcoin remains high.
Economic risks: Tied to Bitcoin’s inherent unpredictability.
International scrutiny: Concerns from institutions like the IMF.

Indeed, El Salvador’s Bitcoin experiment offers potential rewards, but significant hurdles remain.

The future of Bitcoin as legal tender in El Salvador

One of the primary challenges will be managing Bitcoin’s volatility. Despite the current 34% gains in Bitcoin holdings, the inherent unpredictability of the crypto market poses long-term risks. If Bitcoin’s price were to drop significantly, it would expose the country’s economy to substantial losses.

Additionally, financial education will play a vital role in ensuring that more Salvadorans understand and accept Bitcoin. While the Chivo Wallet has enabled many unbanked citizens to access financial services, local resistance remains. Many Salvadorans are skeptical about BTC, preferring the stability of the US dollar.

International scrutiny remains another critical factor shaping the future of Bitcoin in El Salvador. Institutions like the IMF have voiced concerns about the impact of Bitcoin on the country’s economic stability and international standing. These concerns may limit El Salvador’s access to international funding or complicate its relationships with traditional financial bodies.

However, there are significant potential rewards if the country can navigate these obstacles.

El Salvador could further solidify its reputation as a cryptocurrency pioneer by leveraging Bitcoin’s benefits, such as lower remittance costs and improved financial inclusion. Bitcoin could attract more foreign investment, particularly from tech entrepreneurs and blockchain companies looking for a crypto-friendly environment. A recent surge in crypto tourism has brought international attention and investment, which could contribute to economic growth.

Indeed, the country’s ability to balance innovation with risk management will likely shape the broader narrative of cryptocurrencies in El Salvador’s economy.

As of Fall 2024, it’s doing well.