El Salvador’s Bitcoin experiment continues to resonate in both the technology and finance worlds. Under the leadership of President Nayib Bukele, this extraordinary decision drew attention not only from crypto investors but also from central banks, the IMF, developing countries, and global media. This article takes a detailed look at how El Salvador’s Bitcoin decision unfolded, the concrete steps taken by the state, the challenges faced, and the possible long-term effects.
The Adoption of the Bitcoin Law
In June 2021, El Salvador introduced a groundbreaking bill to its parliament. Under President Nayib Bukele’s leadership, the government prepared a proposal to make Bitcoin an official currency alongside the U.S. dollar. This step was not only historic for El Salvador but also marked a turning point in the global history of cryptocurrencies.
What Did the Bitcoin Law (Ley Bitcoin) Include?
On June 8, 2021, the law was passed in El Salvador’s Congress with 62 votes in favor. With this law:
-
Bitcoin was declared legal tender in the country.
-
Every merchant, as long as they had the technical means, was required to accept Bitcoin.
-
All financial transactions, including tax payments, could be carried out in Bitcoin.
-
Transactions made with Bitcoin were exempted from capital gains tax.
-
The exchange rate would be based on the market price.
What Was the Goal?
According to the government, this move had three main objectives:
-
Financial Inclusion: More than 70% of the population did not have a bank account. Bitcoin and digital wallets were presented as an alternative to traditional banking.
-
Lower Remittance Costs: Nearly 20% of El Salvador’s GDP came from remittances. Bitcoin would make these transfers cheaper by eliminating intermediaries.
-
Attract Investment and Technology: The country aimed to position itself as a “crypto-friendly hub” to attract international capital and entrepreneurs.
Chivo Wallet and the Digital Transformation
When the law came into effect on September 7, 2021, the government distributed a digital wallet called Chivo to every citizen, preloaded with $30 worth of Bitcoin. While the app was meant to spread Bitcoin adoption, it initially faced problems such as technical glitches, identity theft, and user security issues.
The Government’s Bitcoin Purchases and the Vision of Bitcoin City
With the entry into force of the Bitcoin Law, the Salvadoran government not only created a legal framework but also became a direct market participant. The state treasury began purchasing Bitcoin, making El Salvador the world’s first government to hold “crypto reserves.” This move clearly signaled that the country was stepping outside traditional monetary policies and embracing cryptocurrency as a central economic strategy.
The Government’s First Bitcoin Purchases
On September 7, 2021, the day the law came into effect, President Nayib Bukele announced on Twitter that the state had made its first purchase of 400 BTC. At the time, this was worth around $20 million. In the following months, the government continued to accumulate Bitcoin with a “buy the dip” strategy. Purchases were typically made during market downturns and each was announced through social media.
As of 2025, El Salvador’s total Bitcoin holdings are estimated to be:
-
Approximately 5,750 BTC
-
Valued at around $345 million at today’s prices (assuming $60,000 per BTC)
“Buy the Dip” Strategy: Bold Move or Gamble?
El Salvador’s Bitcoin purchases received broad support within the crypto community but drew criticism from economists and financial institutions. High volatility, the risks of reserve management, and a lack of transparency were at the core of these concerns. The government, however, argued that this strategy would pay off in the long run.
Bitcoin City: A Crypto Utopia of the Future?
The Bukele administration not only aimed to integrate Bitcoin into the existing system but also set out to build an entirely new financial city. Announced in November 2021, Bitcoin City was planned to be built at the base of the Conchagua volcano in southeastern El Salvador.
Key features of Bitcoin City included:
-
Tax-free economy: No income, property, capital gains, or payroll taxes. Only VAT would apply.
-
Fully powered by renewable energy: The city would run on geothermal energy.
-
Blockchain-based infrastructure: Land registries, identity verification, and even voting systems would use blockchain technology.
-
Special economic zone status: Designed to attract international investors.
Volcano Bonds: The Crypto Path to Financing
To fund Bitcoin City, the Salvadoran government designed a crypto bond program called “Volcano Bonds.” These bonds were intended to finance both the state’s Bitcoin purchases and infrastructure projects. However, due to regulatory and market challenges, the issuance was postponed throughout 2022 and 2023.
By 2024 and 2025, the government has revived the plan. According to some sources, the first issuance is expected to take place by the end of 2025.
Criticism, Economic Tensions, and Facing Reality
El Salvador’s Bitcoin move was hailed as bold and revolutionary within the crypto world, but it was not met with the same enthusiasm in international financial circles. The government’s decisions came under heavy criticism due to economic risks, lack of transparency, technological infrastructure issues, and tensions with global institutions.
Strong Reactions from the IMF and World Bank
One of the strongest criticisms came from the international financial institutions on which El Salvador is economically dependent.
-
The IMF warned that adopting Bitcoin as legal tender posed “macroeconomic, financial stability, and legal risks.”
-
The institution froze loan negotiations with El Salvador and recommended repealing the Bitcoin law.
-
The World Bank rejected a request for technical assistance, citing “environmental and financial sustainability risks.”
Debate Within Domestic Politics
The Bitcoin Law was not welcomed equally across Salvadoran society.
-
Lack of transparency: The state’s BTC purchases were announced directly through Nayib Bukele’s social media posts, creating the perception that decisions were made arbitrarily.
-
Chivo Wallet issues: Identity fraud, account access problems, and technical failures with the digital wallet generated significant distrust.
-
Small businesses and street vendors: Many avoided accepting BTC payments due to price volatility and lack of technical knowledge.
Bitcoin’s Volatility Creates Economic Pressure
In 2022, the price of Bitcoin dropped from $69,000 to $16,000. During this period:
-
It is estimated that El Salvador’s BTC reserves lost more than 60% of their value.
-
The opposition heavily criticized the use of state funds for what they called a “speculative asset.”
-
The government, however, maintained its “long-term vision” argument and did not halt purchases.
Image Damage in International Media
Initially marketed as a “crypto revolution,” the process took a negative turn during the 2022 bear market.
-
Outlets such as BBC, Reuters, and Bloomberg began using harsh headlines like “dangerous experiment,” “economic gamble,” and “populist spectacle.”
-
Investor interest temporarily declined, and some projects were shelved.
El Salvador’s Strategy Update and Stabilization Efforts from 2023 to 2025
The global crypto crash of 2022 and mounting criticism did not cause El Salvador to abandon its Bitcoin policy. On the contrary, the government viewed this period as an opportunity for restructuring and developing a long-term strategy. From 2023 onward, the country’s approach to Bitcoin became more systematic, institutional, and cautious.
Institutionalization with the National Bitcoin Office (ONBTC)
Established in 2023, the National Bitcoin Office (ONBTC) became the official state agency responsible for coordinating El Salvador’s Bitcoin policies. Its duties include:
-
Managing investor relations
-
Overseeing projects such as Bitcoin City and Volcano Bonds
-
Developing education and public awareness programs
This step marked an important milestone in institutionalizing a process that had previously been fragmented and dependent on personal decisions.
Daily BTC Purchase Strategy
In November 2022, Nayib Bukele announced on Twitter that the government would purchase 1 BTC per day. This strategy:
-
Showed that the government had stopped trying to time the market
-
Indicated a shift toward a long-term accumulation model
-
Aimed to provide resilience against price volatility through an approach similar to Dollar Cost Averaging (DCA)
The Geothermal Era in Bitcoin Mining
The Bukele administration sought to make crypto mining sustainable by using geothermal energy infrastructure built around the Conchagua Volcano. The goals were:
-
Making mining environmentally friendly and energy efficient
-
Localizing Bitcoin production to reduce external dependency
-
Increasing BTC reserves not only through purchases but also by producing them
2024 Elections and Renewed Public Trust
In the 2024 elections, Nayib Bukele was re-elected with a high percentage of the vote. The inclusion of Bitcoin policies in his campaign demonstrated that a significant portion of the population supported the project. At the same time, the government shifted toward more “grounded” goals, such as improving the user experience of Chivo Wallet, supporting small businesses, and expanding educational programs.
Could the Bitcoin Model Truly Be Applied in Other Countries?
El Salvador’s Bitcoin initiative has attracted the attention of many developing nations. For countries struggling with inflation, under the pressure of external debt, or with large populations excluded from the financial system, this model stands out as an alternative economic vision. However, its applicability depends heavily on specific conditions and how it is implemented.
Who Showed Interest?
-
The Central African Republic recognized Bitcoin as legal tender in 2022 but later reversed the decision due to technical and political challenges.
-
In countries like Argentina, Venezuela, and Nigeria, the use of cryptocurrencies in daily life has reached significant levels.
-
Russia and Iran have explored ways to use crypto in foreign trade to bypass sanctions.
Could It Serve as a Model?
Yes, but only under the following conditions:
-
The country struggles with high inflation and a weak currency.
-
There is a lack of financial infrastructure, but mobile device penetration is high.
-
The government has political stability and a vision for digitalization.
-
There is a pursuit of independence from international pressures.
Otherwise, placing a highly volatile asset like Bitcoin at the core of a national system could pose a major risk for fragile economies.
How Will El Salvador’s Bitcoin Experiment Go Down in History?
El Salvador embraced Bitcoin not only as an investment asset but as a cornerstone of its national development strategy. While this step brought challenges in the short term, in the long run it has:
-
Positioned the country as a pioneer in the global crypto ecosystem
-
Turned it into a hub for a new generation of investors and entrepreneurs
-
Carved out an alternative path in the pursuit of economic independence
However, the final outcome is still uncertain. Bitcoin’s price, global regulations, technological infrastructure investments, and public support will determine whether El Salvador becomes a success story in crypto history or a cautionary tale.
