El Salvador didn’t just try Bitcoin-it made it legal money. In September 2021, it became the first country in the world to give Bitcoin the same status as the U.S. dollar. No other nation had done that. The move was bold, flashy, and full of promises: cut remittance fees, bank the unbanked, attract global investors, and break free from dollar dependence. But by January 2025, the government quietly walked back the law. Bitcoin was no longer legal tender. So what actually happened? Did it work? And why did the world’s most talked-about crypto experiment collapse under its own weight?
Why El Salvador Chose Bitcoin
El Salvador’s economy has been tied to the U.S. dollar since 2001. That meant the country had no control over its own monetary policy. Interest rates, inflation, and money supply were all dictated by the Federal Reserve. For a small, developing nation, that’s a problem. When the U.S. raised rates to fight inflation in 2022, El Salvador felt it immediately-loans got more expensive, businesses struggled, and remittances from the U.S. became even more critical. About 70% of Salvadorans didn’t have bank accounts. Sending money home from the U.S. cost up to 20% in fees. Most people used cash or informal networks. President Nayib Bukele saw Bitcoin as a fix. No middlemen. No banks. Just direct peer-to-peer transfers. The idea was simple: if you could send Bitcoin via a phone, you didn’t need a bank. And if you could buy coffee with Bitcoin, you didn’t need cash. The government launched Chivo Wallet-a free app that gave every citizen $30 in Bitcoin just for downloading it. They installed Bitcoin ATMs in towns and cities. They promised tax breaks for businesses that accepted it. It looked like a revolution.What Actually Changed
By 2025, 82% of small businesses in El Salvador accepted Bitcoin. That sounds impressive. But here’s the catch: only 1% of remittances were actually sent in Bitcoin. Most people still got paid in dollars. Most still paid bills in dollars. Most still bought groceries with cash. Why? Because Bitcoin was too volatile. Imagine getting paid in Bitcoin on Friday, only to find your salary dropped 15% by Monday because the price crashed. Small shop owners couldn’t afford that risk. Many kept Bitcoin as a ledger item but converted it to dollars immediately. The Chivo Wallet? Most people deleted it after the free $30 ran out. The app was buggy, slow, and confusing. Customer support? Nonexistent. Even the government struggled. El Salvador bought over 6,100 Bitcoin by March 2025, spending more than $500 million. But when Bitcoin’s price fell below $40,000 in late 2023, those holdings lost nearly $150 million in value overnight. The treasury wasn’t just exposed to market swings-it was bleeding.The IMF’s Role: The Quiet End of Legal Tender
In 2023, El Salvador asked the International Monetary Fund for a $1.4 billion loan to stabilize its economy. The IMF said yes-but only if Bitcoin lost its legal tender status. Why? Because the IMF doesn’t trust crypto. It sees Bitcoin as a risk to financial stability, tax collection, and monetary sovereignty. And they were right: El Salvador’s experiment was putting pressure on its budget, banking system, and credit rating. By January 2025, the government agreed. Bitcoin was no longer legal tender. Businesses no longer had to accept it. The law was changed. But here’s what didn’t change: El Salvador kept buying Bitcoin. In fact, they bought 8 more coins in March 2025. Their Strategic Bitcoin Reserve Fund now holds over 6,100 coins. They’re not selling. They’re just not forcing anyone to use it anymore. This wasn’t a defeat. It was a pivot.
Bitcoin Is Still Used-Just Not as Money
El Salvador didn’t abandon Bitcoin. It just stopped pretending it could replace the dollar. Today, Bitcoin is treated like gold. A store of value. A speculative asset. A hedge against inflation. The government still promotes it as a tool for innovation. They hosted the PLANB Forum 2025-the largest crypto conference in Central America. They’re building a Bitcoin City powered by geothermal energy from volcanoes. They’re still pushing blockchain tech for land titles, voting, and public records. And while most Salvadorans don’t use Bitcoin to buy bread, they do use it to send money abroad. The Lightning Network, a faster, cheaper Bitcoin layer, is growing. By 2022, more Salvadorans had Lightning wallets than bank accounts. That’s not nothing. It means the infrastructure is there. People just don’t trust the price.The Real Lesson: Technology Alone Doesn’t Fix Economics
El Salvador’s experiment didn’t fail because Bitcoin was bad. It failed because the government thought technology could solve deep structural problems. You can’t fix poverty by giving people a digital wallet. You need jobs. You need stable prices. You need trust in institutions. Bitcoin can’t deliver that. It can’t pay teachers, fix roads, or reduce crime. It can’t replace a functioning economy. The real win? El Salvador proved that crypto can be integrated into a national system-even if it doesn’t become money. Other countries watched. Panama is testing crypto payments. Nigeria is exploring CBDCs. Even the U.S. is studying digital dollar pilots. El Salvador didn’t win the Bitcoin race. But it lit the starting gun.
