The number of cryptocurrency remittances in El Salvador has declined sharply. The country’s Central Reserve Bank says only a small fraction of inbound remittances involved Bitcoin. The figure is disappointing, considering President Nayib Bukele’s efforts to promote using crypto as an alternative currency.
Despite some Salvadorans using cryptocurrencies and multinational businesses like McDonald’s accepting it, a Central Reserve Bank report shows that cryptocurrency remittances in El Salvador haven’t caught up to the initial expectations. Notwithstanding the government’s efforts to promote the use of Bitcoin, the rate of remittances has been uninspiring. With up to 25% of the country’s GDP coming from remittances, the report indicates that only a minute fraction of the transfers are in digital assets. According to the report, only 1.1% of remittances were in Bitcoin, representing $57.4 million out of $5.46 billion received.
Massive Gap Between Expectations and Reality
Several factors could have contributed to the cryptocurrency remittances in El Salvador. While most Salvadorans still prefer using the U.S. dollar, research indicates that most residents don’t understand cryptocurrencies and how they work clearly. A study by the Central American University revealed that 90% of Salvadorans lacked knowledge about Bitcoin, while 68% were against the government’s decision to adopt BTC as legal tender. The figures show a massive gap between expectations and the reality on the ground.
Additionally, Bitcoin’s price volatility is a significant deterrent, fluctuating wildly from lows of $16,189 in November 2022 to an all-time high of $73,616 in March 2024. The study also revealed the fear of transitioning from traditional currencies to digital decentralized systems driven by emerging technologies. Many Salvadorans were also apprehensive about switching, being ignorant of the security and reliability of crypto transactions. Another reason that could have led to shrinking cryptocurrency remittances in El Salvador is incidents surrounding the hacking of Chivo crypto wallets.
Hackers Killed the Dream
El Salvador made history in September 2021, when it became the first country to make Bitcoin legal tender. The government offered citizens several incentives to popularize the initiative and regularize the El Salvador Bitcoin experiment. The government’s official Bitcoin wallet, “Chivo”, came pre-loaded with $30 in BTC as an inducement for every citizen who downloaded the special cryptocurrency app. The challenges facing cryptocurrency remittances in El Salvador started almost immediately as hackers stole users’ identities and funds, making them scared of the entire Bitcoin issue.
At least 50% of Salvadoran households downloaded the Chivo wallet when Bitcoin became legal tender in the country. However, the failure of cryptocurrency enthusiasm in El Salvador seems to have set in at the beginning of 2022, with fewer households joining the early adopters. Research shows that over 60% of early adopters never made any other transactions once they exhausted the $30 Bitcoin offering that came with the account. Strangely, 20% of those who downloaded the app have never spent their bonus. Only a small group of users, mainly young, male, banked and educated consumers, are actively using the app, even though they were not the initial target group.
Enhance Educational and Outreach Initiatives
The El Salvador Bitcoin experiment has had its high and low moments as far as adoption is concerned. Despite the disappointing rate of cryptocurrency remittances in El Salvador, Nayib Bukele’s government continues to promote crypto-based investment within the country. The most notable initiative was a citizenship-by-investment program announced in December 2023. The program incentivizes citizenship by offering residency visas to anyone willing to make a $1 million investment in Bitcoin or Tether (USDT).
While no other country globally has joined in making Bitcoin legal tender, the failure of the cryptocurrency enthusiasm in El Salvador raises critical questions regarding the effectiveness of the administration’s efforts in dealing with potential hurdles to widespread crypto adoption. With only 1.72% of the population owning Bitcoin and declining cryptocurrency remittances in El Salvador, the Nayib Bukele administration must increase its educational and outreach initiatives to tap into the still hesitant and ignorant population about the benefits of Bitcoin and other cryptocurrencies.
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