The Real Story Behind Bitcoin in El Salvador

September 13. 2021. 10 mins read

You’d be excused for not knowing much about El Salvador, the smallest country in Central America and the only one without a Caribbean coastline. Surfing is probably the most cited reason why El Salvador is on someone’s travel list, though the country has much more to offer than just breaks. Lately, El Salvador has been shoved onto the global stage because it is the first country in the world to adopt the most popular cryptocurrency around, Bitcoin, as legal tender.

If you’re on the surf circuit, you’ll likely cruise down to the party pueblo of El Tunco, a lazy little two-street town next to Bitcoin Beach, a small part of El Salvador that’s seen as a Bitcoin success story. That’s where the world’s journalists made their way last week to observe the day on which Bitcoin became legal tender in El Salvador. The man behind the plan? None other than the country’s president, Nayib Bukele. It was huge news around the world, so we put some boots on the ground to understand what was happening. After a week’s worth of heavy research conducted in local bars, we found four camps, each towing a fairly predictable line:

  • Bitcoin/crypto bulls – The always appreciating asset, Bitcoin, is the future, and that’s not open for debate.
  • The U.S. / The IMF – The Bukele administration is corrupt and his Bitcoin idea further demonstrates his incompetence
  • Middle-class Salvadorians – Bukele is kind of a tool but we don’t think Bitcoin is a good idea
  • Impoverished Salvadorians – Bukele is a saint but we don’t see the point in this whole Bitcoin thing

As always, the truth is somewhere in the middle. Let’s start with the man whose idea it was – Nayib Bukele.

Images of Nayib Bukele. Credit: Google Images
Credit: Google Images

About Nayib Bukele

Being that Nanalyze is a politics-free zone, we’ll keep this part light. Mr. Bukele is a millennial politician who is in touch with the younger generation. He’s not afraid to express himself on Twitter, and these days much of his banter surrounds the rollout of Bitcoin.

Image of Nayib taking the piss out of the IMF on Twitter - Credit: Twitter
Taking the piss out of the IMF on Twitter – Credit: Twitter

At the same time, he’s a virtuous family man who cares about building a better future for his country. He’s been helping out the poor with cooking oil, beans, rice, and $300 checks, leaving the naysayers to accuse him of engaging in populism. As with most Central American leaders, he’s perceived suspiciously by the Americans, a can of worms that’s covered extensively elsewhere. What propelled this 40-year-old former marketing executive onto the world stage was his decision to make Bitcoin legal tender.

Technically, Bitcoin has always been legal in El Salvador. Anyone at any time could use Bitcoin to pay for a good or service if the person on the other end of the transaction was willing to accept Bitcoin. The difference now? Bitcoin is legal tender so businesses are obligated to accept it. Understandably, that’s a huge point of contention for the numerous small shops across the country selling everything from minutas to pupusas.

What makes El Salvador uniquely suited to start accepting Bitcoin as legal tender is that they’ve used the U.S. dollar as their currency since 2001. Translating between Bitcoin and a major currency should be easy enough, say the Bitcoin bulls, but that’s hardly the case.

The Bitcoin Bulls

The most bullish voices for Bitcoin in El Salvador come from the small surf town of El Zonte where a charity called Bitcoin Beach has been running an experiment of sorts with the local people. It’s where everyone descended upon September 7th, the day Bitcoin became legal tender in El Salvador. While it’s arguable whether this small experiment is a convincing success story, outside the town of El Zonte, adoption is happening slowly, if at all.

Up the road in the neighboring town of El Tunco, a place that sees a constant flow of tourists and El Salvadorians on holiday, any sign of Bitcoin support quickly fades away. There’s a coffee shop that accepts Bitcoin but is rarely called upon to do so. There’s an ATM that functions at a snail’s pace, with a wide bid-ask spread that taxes anyone who uses it. It’s only in the small town of El Zonte where you’ll find the most traction for Bitcoin, where you’ll hear from the staunchest local supporters who appear goaded on when Bukele retweets their “us against the world” commentary. It’s the sort of banter we’ve come to expect from Bitcoin’s strongest supporters.

Last week’s piece by the Financial Times, Inside the cult of crypto, accurately describes how advocates see skeptics as standing in the way of financial equality (that’s a term that rarely means what it says on the tin).

Crypto-cultism promises a social and financial revolution that will energise technological innovation, all the while rewarding the worthy with vast wealth.

Credit: Financial Times

It’s a compelling case to be made, but how many Salvadorians really believe that?

What Do Salvadorians Think?

To get into the mindset of the local natives, we met up with Mauricio, a Salvadorian businessman whose reputation precedes him as one of the best surf instructors on the coast (contact info here). He helped our correspondent engage local vendors and customers to see what people had to say about Bitcoin. Nobody seemed to care much for it, and we quickly found out why.

The Bitcoin bulls say that “Bitcoin in El Salvador is more political than COVID in the U.S.” In other words, Bukele’s opposition will clearly oppose Bitcoin for the sake of opposing Bukele. That doesn’t seem likely when you look at Gallup polls which show Bukele as one of the most liked presidents in Central America with a 90% approval rating. That would mean no more than 10% of El Salvadorians are against Bitcoin, but the number is much higher than that. The opposition to Bitcoin isn’t just political, it crosses all party lines.

Shortly after the Bitcoin law of June 8th was passed, the Chamber of Commerce and Industry of El Salvador launched a survey among its base of partners, businessmen in general, and consumer citizens. In total, 1,600 responses were received. Of those, 96.4% indicated that they prefer the use of Bitcoin to be optional. In other words, they do not believe that store owners should be forced to accept Bitcoin.

No doubt there’s a major concern about being forced to use Bitcoin, but there’s also a desire to not fix what isn’t broken. This brings us to the three main use cases for Bitcoin in El Salvador:

  • Bitcoin as an investment
  • Bitcoin for transactions
  • Bitcoin for remittances

Bitcoin as an Investment

El Salvador may be a country where over 70% of people don’t have bank accounts, but her citizens seem savvy enough. When asked why they are apprehensive about Bitcoin, the most common response is “we don’t know how Bitcoin works and we fear the volatility of the currency.” That’s precisely the problem. Most people who dabble in Bitcoin have no idea how it works, nor do they understand the problems volatility creates. Bitcoin is not an investment; it is a mechanism for speculation with no intrinsic value.

To try and convince a population of people with very little knowledge of investing that Bitcoin is a prudent way to save money is irresponsible. Many Bitcoin bulls naively assume that Bitcoin will only go up. It’s an assumption that causes whoever holds it to immediately lose all credibility. Cryptocurrencies are not an investment, they are extremely volatile speculative mechanisms with no intrinsic value, most of which are supported by greater fool theory. A small number of institutional money managers believe Bitcoin is the next gold, but that remains to be seen. (We do hold ~2% of our assets under management in Bitcoin because the long-term thesis seems compelling.) But it’s completely false to assert that denying Salvadorians Bitcoin is denying them the ability to escape from poverty.

Bitcoin For Transactions

On Twitter, you’ll find some widely-shared video clips of foreigners paying for coffee or food in El Salvador using Bitcoin. Dig a little deeper and you’ll find more comprehensive videos that show just how bad the user experience is. Sure, McDonald’s and Starbucks accept Bitcoin because someone in the legal department wanted to make sure they maintain compliance to whatever laws are passed in the jurisdictions they operate. But when it comes to mom and pop shops, you’ll be lucky to find any outside of Bitcoin Beach that supports Bitcoin transactions or care to. If you’re keen to give it a go, your experience might go something like this:

  • Purchase expensive smartphone that most people can’t afford
  • Purchase local SIM card with data so you have Internet access
  • Look long and hard to find a shop that accepts Bitcoin
  • Transfer some Bitcoin to a wallet (we used Coinbase)
  • Attempt to download the Strike app which says “not supported in your country”
  • Download the Bitcoin Beach app instead and authenticate using local number
  • Transfer $20 from Coinbase wallet to Bitcoin Beach wallet and wait 15 minutes for the transfer to clear
  • Pay store clerk by showing them the green “check” in the Bitcoin Beach app

Getting to the point of being able to pay for something with Bitcoin was painfully complicated and anything but transparent. The store clerk had no visibility into the transaction being completed on their end so they simply accepted when we showed them a green check mark on our phone which meant the payment was successful. (How long before someone builds a fake app that shows green check marks on demand?)

Then there’s the Bitcoin ATM that charges you 10% for a 20 spot along with a wide bid/ask spread. After you send Bitcoin to the ATM, you’ll probably be confused when you’re told to eff off for a while.

Image showing the use of Bitcoin ATM in El Tunco. Credit: Nanalyze
Using the Bitcoin ATM in El Tunco – Credit: Nanalyze

Go grab a coffee and come back 6 minutes later and then it spits out 20 bucks. Just make sure you don’t lose the piece of paper with the QR code on it because that’s the only way you’re getting your 20 bucks.

picture showing withdrawal transactions with Bitcoin ATM. Credit: Nanalyze
Nothing like waiting six minutes to get your money from the Bitcoin ATM while people stand around laughing at the whole spectacle – Credit: Nanalyze

Then there’s the fee structure which even an MBA would find confusing. There’s a “$2 additional fee,” then there’s a “6% percentage fee.” The latter may refer to the ATM spot price of $41,984 when the actual price of Bitcoin is $44,871, but we just don’t know.

Picture showing the fees aren't as bad as some ATMs, but they're not good either - Credit: Nanalyze
The fees aren’t as bad as some ATMs, but they’re not good either – Credit: Nanalyze

The process of retrieving Bitcoin from an ATM was anything but smooth and transparent, and it’s doubtful your average Salvadorian with no bank account is suddenly going to start using Bitcoin ATMs, which is a good segue into talking about remittances.

Bitcoin for Remittances

You’ll find no shortage of headlines talking about how El Salvador’s adoption of Bitcoin will screw Western Union out of $400 million in fees, money that will instead be put into the pockets of the poor.

Image on Twitter showing headlines talking about how El Salvador's adoption of Bitcoin will screw Western Union out of $400 million in fees. Credit: Twitter
Credit: Twitter

The Bitcoin bulls think those impoverished El Salvadorians will leap at the chance to screw over Western Union and save $8 on a $500 transfer. For those who don’t, they’re accused of “not understanding the great Bitcoin opportunity.” In the aforementioned survey, 82.5% of respondents said they were not interested in receiving their remittances in Bitcoin. If a system isn’t broken, why try to fix it?

A June 2021 paper by John Hopkins University titled Bukele’s Bitcoin Blunder looks at how important remittances are in El Salvador where 18% of households receive money from abroad. No other country in the Western Hemisphere, aside from Haiti, relies more on remittance payments than El Salvador.

The paper goes on to talk about the Bitcoin Beach experiment – “merchants and consumers struggled to make the payments app work on their phones, as internet connectivity in El Salvador is the second-worst in the Latin American-Caribbean region.” Reality isn’t what we’re being led to believe, says the paper. The average transaction cost – as a percent – for sending remittances using Western Union is 2.85% per transaction, the sixth lowest of the 104 countries monitored by the World Bank. The paper talks about the lack of Bitcoin ATMs, a problem that’s since been solved, but at what cost? The government of El Salvador seems to have anticipated these criticisms as they quickly moved to provide incentives for their citizens to adopt Bitcoin.

Chivo App and ATMs

In order to encourage Salvadorians to use Bitcoin, the government has taken several steps. They’ve deployed 200 Chivo ATMs across the country, machines that will complement the government’s “Chivo” app which (checks notes) still isn’t working properly. When it does work, the app will provide any Salvadorian who uses it $30 worth of Bitcoin. Well, it’s not actually $30 since the price of Bitcoin imploded the day it became tender. Good luck explaining to everyone why they’re only getting $25.23 or $24.71 or $26.98 or whatever the amount happens to be when they were promised $30. The government also plans to subsidize all fees and keep a stock of Bitcoin on hand for those (of which we suspect there will be many) who want to immediately convert their Bitcoin to greenbacks.

Eventually, all the kinks will be worked out and the user experience might approach something usable. Even then, it’s hard to see Salvadorians adopting Bitcoin in favor of the U.S. dollar for any of the three use cases we’ve mentioned. Bitcoin is a volatile speculative mechanism that Salvadorians are having a hard time trusting. Throw in a rollout that was glitchy at best and that trust isn’t improving over time.


El Salvador is a great little country to visit, one where the locals kindly patronize the gringos and their “dos cervezas por favor” Spanish. Everyone seems to have some agenda when it comes to discussing the El Salvador Bitcoin story, but the people whose opinion really matters – the Salvadorians – just aren’t keen on Bitcoin. That’s the reality. Even looking beyond the problem-stricken initial rollout, it’s hard to see Bitcoin being some panacea for your average Salvadorian who is just trying to make ends meet.


Leave a Reply

Your email address will not be published.

  1. Seems like this is just a publicity stunt. If you want to adopt a cryptocurrency for everyday transacting, you’d pick one of the many other tokens with much faster blockchains and lower transaction costs – or you’d create your own digital currency.

    1. Good point. We heard similar questions asked, like why wouldn’t the government use a stablecoin pegged to the U.S. dollar? It would be a whole lot less confusing for everyone.Circle’s $USDC seems like a good candidate.

  2. Now we know why so many El Salvadorians are caught breaking into the southern border of the U.S. Its not a stagnant economy, high levels of crime and violence, poverty, and natural disasters after all. Its seeking asylum from Bitcoin.

  3. Argo Blockchain PLC (LSE:ARB, OTCQX:ARBKF, FRA:0XP) is launching a Nasdaq IPO of American depositary shares (ADS) which would, at the current market price, raise around £100mln.

  4. Why replace a flawless pyramid scheme that has worked for centuries; the usd, with another awkward pyramid scheme; Bitcoin..Except to make early btc adopters rich? .if you are going to replace usd find something that benefits everyone and is fair……I can use my platinum CC anywhere in the world thanks to Jamie Dimon; I buy a Starbucks with no transaction fees and the exchange rate falls onto the Visa interbank rate. What do I need Bitcoin for? No thanks. Bitcoin brainwashing hasn’t worked on me sorry

    1. Well said John.

      If you have a favorite sports team, and they’re playing an important game, always place a bet on the other team. That way you’re happy with either outcome. Similarly, we have two percent of our assets in bitcoin. If it hits $500,000 like ARK says, great. If it eventually goes to zero – because it very well could no matter what the bitcoin bulls say – then we’ll only be out a small percentage of total assets.

      What’s far more scary is looking at the utter tripe being passed off as “investments” in the crypto community – pictures of rocks and such. It’s a house of cards waiting to fall.