Zinger Key Points
- Despite government subsidies and mandates, Bitcoin usage in El Salvador fell sharply, with businesses and consumers preferring U.S. dollars.
- Koning says Bitcoin’s volatility prevents it from serving as money, as neither risk-averse nor speculative users want to spend it.
- Get access to your new suite of high-powered trading tools, including real-time stock ratings, insider trades, and government trading signals.
El Salvador’s attempt to embrace Bitcoin BTC/USD as legal tender has conclusively proven that the cryptocurrency is not viable as a widespread payment system, according to an analysis by John Paul Koning.
What Happened: Even with government support, adoption sputtered, Koning stated in a blog post.
Bitcoin’s inherent volatility and impracticality render it unsuitable for everyday transactions, dimming any hopes of it becoming a widely-used form of electronic cash.
"El Salvador's four-year Bitcoin experiment definitively proved that Bitcoin is not destined to be money," Koning wrote. "Even with government mandates, subsidies, and the elimination of tax barriers, Bitcoin payments never gained traction."
El Salvador made Bitcoin legal tender in 2021, requiring businesses to accept it and offering incentives such as zero capital gains tax and fee-free transactions.
The initiative was meant to increase financial inclusion and lower remittance costs.
However, according to data from El Salvador's central bank, the percentage of total remittances sent via Bitcoin wallets peaked at 4.5% before declining to just 0.87% by late 2024.
Survey data further supports the lack of adoption.
A study by economists Alvarez, Argente, and Van Patten found that while over half of Salvadoran adults downloaded the government-backed Chivo wallet, most abandoned it after receiving their $30 Bitcoin bonus.
The median user reported no Bitcoin transactions in a typical month.
"For Bitcoin to function as money, it needs a circular economy—businesses accepting it and consumers spending it," Koning noted. "But businesses that accepted Bitcoin overwhelmingly converted it to dollars, and consumers rarely used it for transactions."
A separate survey by José Simeón Cañas Central American University showed that Bitcoin usage for payments in El Salvador fell from 25.7% in 2021 to just 8.1% by 2024.
Among that 8.1%, most used Bitcoin only once or twice a year, with only 1 in 200 Salvadorans making Bitcoin payments on a weekly basis.
Koning attributes Bitcoin's failure as a payments tool to its intrinsic volatility, arguing that both risk-averse and risk-seeking users have little incentive to spend it.
"Risk-averse individuals avoid Bitcoin because of its price swings, while speculators hold it expecting future gains. The end result is that no one actually uses it for payments," he wrote.
El Salvador ultimately repealed its Bitcoin mandate in early 2025, partly due to pressure from the International Monetary Fund, but Koning argues that Bitcoin's failure as a payments tool was evident long before that.
"The saddest thing about El Salvador's Bitcoin experiment is the wasted resources—funds that could have been used for healthcare and education instead went into an unusable payments system," he wrote.
What’s Next: Koning sees El Salvador's experience as conclusive proof that Bitcoin will never function as everyday electronic cash.
"A government spent four years actively pushing Bitcoin as a payment method, and it still failed. The lesson here: Bitcoin is a bad payments tool and will never become widely-used electronic cash. It's time to move on."
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