- Only 20 Bitcoin service providers are operational in El Salvador, with the majority inactive.
- 22 non-operational providers failed to meet the country’s Bitcoin Law requirements.
- Despite Bitcoin’s legal status, local adoption has been limited, with less than 1% of remittances using Bitcoin.
The implemented experiment regarding Bitcoin in El Salvador has not been without hurdles, as only 11% of the registered 104 Bitcoin service providers (BSPs) are currently active. According to data from the Central Reserve Bank of El Salvador (BCR), 161 of the 181 Bitcoin service providers in the country are not operational. While registered, these providers do not fulfill the legal standards of the country’s Bitcoin Law. The laws cover aspects such as anti-money laundering, cybersecurity, and accurate financial record-keeping.
Regulatory Compliance and Operational Challenges
The Bitcoin Law enacted in El Salvador in 2021 mandates service providers to operate with integrity, establish and implement AML policies, and protect data with cybersecurity measures. However, the current data indicate that 161 providers are labeled non-operational, with 22 of them not meeting these standards. Non-compliant firms have failed to apply the provisions of the financial system supervision or offer sufficient operational transparency. This has raised some questions regarding the country’s general Bitcoin adoption strategy.
Among the 20 active providers, Chivo Wallet, the wallet provided by the government, is one of the few operational ones. However, its future is still unknown because it is set to be dissolved as per the agreement with the International Monetary Fund (IMF). Other operating providers are Crypto Trading & Investment and Fintech Américas.
El Salvador’s Struggle with Bitcoin Adoption
Local adoption in El Salvador has not grown as expected despite the country being the first to adopt Bitcoin as legal tender. President Nayib Bukele expected that Bitcoin would boost the economy since adopting the currency was one way, however, data shows little impact has been felt by the ordinary Salvadoran. One of the key utilization areas, remittance, has remained stagnant and only 1% of remittance flow applies to Bitcoin.
While state purchases are prohibited by agreements with the IMF, the Salvadoran government’s continued use of Bitcoin also sparks domestic controversy. Contrary to the recommendations to reduce its activity in Bitcoin transactions, the government continues to possess more than 6,100 BTC, which is equivalent to about $500 million.
Bitcoin Law and the IMF Agreement
Recently, the government of El Salvador signed a $1.4 billion loan deal with the IMF, which led to a restraint of government operations regarding Bitcoin. Bitcoin usage will cease in matters concerning public institutions as a measure to contain its use, and taxes should no longer be paid in Bitcoin. This has affected the running of Bitcoin operations for service providers, slowing down the progress made in making Bitcoin legal tender in El Salvador.
However, there are still some positive points to make out of all these. The country hosted events such as the Plan ₿ Forum, which saw Tether reveal its intentions of linking USDT to Bitcoin. This, however, has not translated into the broad local adoption the government had initially expected from such an event.
