El Salvador's crypto experiment ends in failure
98 comments
·March 9, 2025roenxi
I'm pretty open to the idea that their crypto experiment ended in failure because bitcoin must be a truly terrible reserve asset, but being assassinated by the IMF isn't really evidence of that. El Salvador doesn't seem to have independently changed their minds about the merits of their policy.
I might draw a very vague parallel with a gentleman who can't repay a mortgage and through various machinations the bank forces him to sell his beanie baby collection. The beanie baby collection might have been a success or a failure for him personally. Probably was a failure. But that isn't really what we're learning in this story.
And pointing out that they lose money on the bitcoin reserve is a bit of a non-sequiter. They all do that. Gold has storage costs, the USD inflates like crazy and sometimes the US sanctions you. The analysis has to be a bit deeper than just noting that money was lost, it is a tricky question of relative options.
tptacek
The article makes a case on the merits for the failure of the project, in terms of its uptake, the direct value generated, and the costs of its rollout.
Lerc
I don't know, they say that they're up $250M but the total cost of the program was $375M. I presume the bulk of that $375 went into the $30 incentive balance. That amounts to quite an economic stimulus for cheap.
All in all, El Salvador has been doing pretty well economically. It's human rights that have been the worrying point.
roenxi
Those arguments could be levelled against any currency. Typically uptake is only 100% because the government has a "thou shalt accept this" policy. If it was practically voluntary then a bunch of businesses would operate on a barter system or private scrip. Even with the insistence of the tax office it takes regular crackdowns to stop alternatives springing up.
And it is even easy to argue that normal currency is value destructive, all the flows of money into crypto are implicit "I'd rather be burning energy than using USD" announcements.
crazygringo
No, this was very specific to crypto:
> The IMF was wary of lending to El Salvador while bitcoin was legal tender. Its volatile price posed a risk to financial and fiscal stability.
Government currencies don't have the price volatility of Bitcoin. You simply can't reliably manage an economy with that kind of volatility.
tptacek
"Nobody used it and the costs didn't justify the usage" is a complaint you can level at any currency?
SpicyLemonZest
The Salvadoran government did have a "thou shalt accept this" policy, in addition to exempting bitcoin holdings from capital gains tax. It worked to drive initial interest, with a quarter of Salvadorans using Bitcoin for at least some transactions in 2021, but adoption fell sharply over time. I haven't studied it in depth, but my vague understanding is that many businesses couldn't actually figure out how to practically accept Bitcoin despite being theoretically required to.
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wmf
Historically you could make money by holding Bitcoin for over four year but El Salvador gave up before that and they never bought much to begin with.
The other aspects like remittances and Bitcoin-based retail payments were always terrible ideas. Not surprisingly that's where their losses come from.
neither_color
The legal tender experiment failed, the crypto experiment is ongoing. An entrepreneurial audience like this would be more charitable in interpretation if this was a company in the middle of a pivot.
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stefan_
I don't understand, it seems you and the IMF agree on bitcoin being a truly terrible reserve asset.
roenxi
I can certainly see why you would believe I am always right about everything, but the truth is stranger than fiction - sometimes even I am confidently wrong!
Just because I agree with the IMF doesn't make either of us correct. It was El Salvador's experiment and the IMF's motivations are highly suspect. They are globalist political actors, they aren't motivated by any particular love of the economies they intervene in or the people in them.
jongjong
Conspiracy theorists have been predicting the IMF getting involved in El Salvador since the day they got involved in Bitcoin. Those who read the conspiracy theory posts years ago are now rolling their eyes reading such articles.
dexter0
Key points:
> Despite these profits, crypto has brought El Salvador more costs than benefits. The free publicity has been welcome, yet crypto-investment and crypto-tourism have been small beer. Gains in financial inclusion and from more efficient payments are meagre at best: the currency never really caught on. In 2022, when the hype was at its peak, a survey by CID-Gallup found that only a fifth of firms accepted bitcoin and just 5% of tax payments were in crypto.
> Moreover, the policy cost $375m in all—from the Chivo rollout, subsidised transaction fees, bitcoin ATMs and more—according to Moody’s, a rating agency. That far exceeds the profits on bitcoin holdings, which could still evaporate. By delaying an IMF deal, the crypto experiment kept El Salvador’s risk premium high.
Loughla
So this was just a way to shift more public dollars into private hands?
dgfitz
The bulk of BTC is owned by like 50 people. It’s such a fucking joke.
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ty6853
375 minus like 287 in unrealized gains. My next question is are they still behind once you consider the market value of the ATM and other investments. I doubt it's a total write off.
rafram
Who’s realistically going to buy 400 or so bitcoin ATMs (must pick up in El Salvador)? ATMs aren’t a high-margin business.
ty6853
I don't trust El Salvador. I also don't trust the people indicting their policy. I hope to God they have more than 400 ATM to show for 375M. Surely there is more to it.
blindriver
I worked at a crypto company and left after I realized that 99% of crypto are scams. Either people get rugpulled or they get their wallets emptied by scammers, and I don't think Apple would have survived if the iPhone was a hotbed of scams. There's a tiny sliver of activity which isn't purely scams, like BTC or ETH but even then there's almost no real use case except the Greater Fool Theory, and I just don't think that's sustainable. I think at some point the entire industry is going to get rugpulled because there's still no inherent demand except selling it to someone else for more money.
werdnapk
Doesn't take working at a crypto company to realize 99% of crypto is a scam. Meme coins, ICOs and NFTs were the icing on the cake for me though.
brianwawok
Yup. A lot of people got rich, but I can’t see it lasting much longer
blindriver
> but I can’t see it lasting much longer
I said this back in 2012, and I've been waiting ever since... That's why I decided to join the crypto company but left after seeing it from the inside of the actual space.
daveguy
Like I told my family recently:
I think people are going to start realizing that there's a lot more invested in crypto than it's worth. Trump putting the federal government behind a crypto reserve didn't intice new investors/investment. Not sure where the bottom is, but we might find out sooner than later.
The people who want crypto have it. The people who recognize it's not worth the lack of fraud regulation/protection and instability aren't going to suddenly start buying.
chiefalchemist
BTC aside, the rest are scams. As for BTC I went to this presentation at Princeton University in late 2024.
BTC isn’t perfect but often enough it’s better than centralized alternatives.
https://www.princeton.edu/events/2024/book-talk-resistance-m...
greyface-
The Princeton site doesn't seem to link to it, but the talk was recorded and published on YouTube: https://www.youtube.com/watch?v=8nKMM5OKiP8
dang
Recent and related:
El Salvador abandons Bitcoin as legal tender - https://news.ycombinator.com/item?id=42925210 - Feb 2025 (858 comments)
merek
For an excellent analysis of Bukele and life on the ground in El Salvador, I highly recommend Matt Lakeman's notes:
https://mattlakeman.org/2024/03/30/notes-on-el-salvador/
Specifically on Bitcoin:
> This guide also told me that he immediately spent his $30 Bitcoin gift from the government on beer and hasn’t possessed a single Satoshi since.
> I saw maybe four or five Bitcoin ATMs in El Salvador, including two Athena Bitcoin machines. I didn’t see anyone using them.
> The guide, who I consider an articulate and strong supporter of Bukele, seemed to consider the president’s Bitcoin ambitions to be a weird, misguided, but ultimately trivial effort.
greyface-
Whether or not it's classified as legal tender going forward, Bukele has indicated that he intends to continue amassing Bitcoin as a reserve asset: https://twitter.com/nayibbukele/status/1897019629702410551
dsr_
High volatility is the thing that should be most avoided as a reserve.
toomim
Not if the "volatility" is in the upward direction.
ursuscamp
That really depends in your time horizon
kinakomochidayo
Which is ironic, considering how Bitcoin security budget will very likely decrease as time goes on with Bitcoin halvenings and low transaction fees going to miners
Jimmc414
El Salvador invested approximately $269.74 million to acquire 5,900 bitcoins ($595 million) and secure $1.4 billion in IMF loans. I hope they can recover from this failure.
xiphias2
The article doesn't get into the interesting part: Salvadorian government continued accumulating BTC. So far IMF didn't say anything specific, so the June review will be interesting to see if IMF continues with the loan or cancels the next trenches.
ramchip
Did you read the article?
> Moreover, the policy cost $375m in all—from the Chivo rollout, subsidised transaction fees, bitcoin ATMs and more—according to Moody’s, a rating agency. That far exceeds the profits on bitcoin holdings, which could still evaporate. By delaying an IMF deal, the crypto experiment kept El Salvador's risk premium high.
toomim
El Salvador makes $330m from a Bitcoin investment and the Financial Times calls it a "failure."
TechDebtDevin
1.4bn seems cheap, and its a loan that presumably will be guaranteed. So for 1.4bn dollars the IMF gets to call the shots for an entire country's economy.
Im surprised we dont see more private indvs playing the role of WB.
NicoJuicy
Yeah, Greece didn't survive IMF.
Oh wait...
(Nobody remembers the long term success stories, just the short period pain)
TechDebtDevin
Im not even arguing against this type of lending, although it does seem predatory to a degree. Im surprised at how much leverage can be bought for 1.4bn $$, this is pocket change for most large banks/countries, im surprised the IMF doesn't have more competitors, especially if natural resources are on the table, and they always are.
ionwake
I dont check the price of BTC anymore to I just check if there is someone posting an article to HN about Salvador from mainstream media.
bobbybobbington
The infrastructure is not set up yet, but the multi-nationals have good facilities for it. It's just like any currency, up one day, down the next, which is why I say it's long time past we did away with the concept of money. Not only is the concept of money outdated, it's not a natural phenomenon, other wise trees would give receipts. Living a life in a money world is not unlike living in a cloud cuckoo land, it's just as illusory. There's fish in the sea, crops give up seeds from the ground and barnyard animals reproduce, not a penny passed hands. The world has the education, if the Egyptians could turn a desert in to paradise more than 15,000 years ago, why can't we?
biophysboy
Have any crypto experiments ended in success?
henrikschroder
Well, tons of scammers have made tons of money, so technically, yes?
For the average person not so much.
PartiallyTyped
Including current POTUS and their family :)
claudiug
for the one that make money, yes :)
https://archive.is/BNzS2