El Salvador's crypto experiment ends in failure
143 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.
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.
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.
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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.
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.
Halfwhit
I really like your writing style and effort to critique both sides of a debate, do you happen to have a blog or anything?
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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.
jakejake2025
It doesn't matter what El Salvador thinks of Bitcoin. For it to succeed it needs to be accepted by institutions such as the IMF. That's great that it sounds good in theory but if a currency isn't widely accepted it's a failure.
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.
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.
blitzar
and 20 of them lost the keys to those BTC 10 years ago
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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.
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...
kinakomochidayo
BTC in its current form is probably the biggest scam in existence right now. BTC does not work long term, as block rewards increasingly get cut in half and the transaction fees aren’t enough to incentivize the miners. It’s been well known outside the Bitcoin community, and slowly talked about within Bitcoin, with some core devs like Peter Todd talking about tail emission, but that would break the 21 million cap. Bitcoin is screwed.
petertodd
> with some core devs like Peter Todd talking about tail emission, but that would break the 21 million cap. Bitcoin is screwed.
Tail emission, economically speaking, means that the ~0.5%/year or whatever coins that get lost each year go to miners rather than get evenly spread across everyone holding Bitcoin. That's economically equivalent to imposing a ~0.5%/year tax to pay for security.
You can do essentially the same thing - economically speaking - without touching the 21 million cap with a soft-fork implementing a security tax directly when coins are spent.
Neither solution means Bitcoin is screwed. Even 0.5%/year compounded over 50 years - a lifetime of savings - is just 28%. And of course, 0.5% means nothing compared to the ups and downs of any currency. Bitcoin already has about 0.5% monetary supply growth per year right now; it's only in the long run that the subsidy goes away.
A lot of "Bitcoin Maxi's" are of course horrified by all this. But a lot can change in the 8-12 years before any of this really matters. And who knows, maybe fees will be sufficient? IMO it's stupid to take the risk when a solution is cheap and doable. But that doesn't mean the game theory problem will actually happen in real life. Other coins survive with much bigger game theory problems, like straight up centralization.
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
eYrKEC2
BTC _is_ the centralized alternative. It's a PUBLIC ledger and all the exchanges are following KYC.
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.
Smithalicious
I also used to work in crypto professionally and quit over the clown show, but personally I saw lots of stuff that wasn't scams. There were a lot of scams though, very low ethical and professional standards across the board, just tons of stupidity and nativité... But even then there's tons of stuff possible that at least on philosophical principle I'm still really bullish on, and tons of interesting cryptographic tech is still coming out of there that will find a good home eventually.
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.
petertodd
> I saw maybe four or five Bitcoin ATMs in El Salvador, including two Athena Bitcoin machines. I didn’t see anyone using them.
I've visited El Salvador quite a few times and traveled a decent % of the country, including non-touristy areas. I've seen plenty of Bitcoin ATMs in El Salvador. In some areas they aren't busy. But in other areas they have consistent line-ups of _locals_ using them. And yes, I said locals, not tourists. I'm not sure why the locals use them so much. But remittances is one possibility.
If all Bitcoin managed to do was force the likes of Western Union to keep their fees low via competition, it'd be a success for El Salvador. As of 2023, about 24% of El Salvador's entire GDP is remittances.
> 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.
Of course, let's put all this Bitcoin stuff in perspective: Bukele's legacy will most likely be ending gang violence. I consider the Bitcoin stuff a mild success; ending gang violence has radically transformed the country for the better.
dang
Recent and related:
El Salvador abandons Bitcoin as legal tender - https://news.ycombinator.com/item?id=42925210 - Feb 2025 (858 comments)
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
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.
dzonga
yeah as an economy - you don't want to ever receive IMF money. Lots of African and Caribbean countries will attest to that. IMF money is like having the mafia control your money - the structural adjustments will kill the natural course of your economy and never recover.
That's why Chinese loans have been welcome for a lot of countries. they don't come with a lot of stipulations, such as removing subsidies for your farmers.
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.
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."
o999
One does not need an expert to predict a terrible failure of Bitcoin as a legal tender and for $30-worth of free BTC wallet.
But as a minority of reserve asset, Bitcoin might be a good idea, nobody bought bitcoin at any price whatsover and wasn't able to make a profit that beats US T-bonds for 4 consecutive years (please double check on this, it's not a financial advice), let only if they DCA their portfolio.
Of course such national reserve cannot make a large % of the total reserve as the risk is also high and wealth of the nation is not meant to be used in risky bets. 4 years is also not a very meaningful window for a 16 years old market.
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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?
https://archive.is/BNzS2