El Salvador's crypto experiment ends in failure

https://www.economist.com/finance-and-economics/2025/03/02/el-salvadors-wild-crypto-experiment-ends-in-failure

by jcartw • 1 year ago

151 118 1 year ago

economist.com

TechDebtDevin3• 1 year ago

Archive anyone?

hsuduebc22• 1 year ago

https://archive.is/BNzS2

hsuduebc22• 1 year ago

https://archive.is/BNzS2

dang• 1 year ago

Recent and related:

El Salvador abandons Bitcoin as legal tender - https://news.ycombinator.com/item?id=42925210 - Feb 2025 (858 comments)

alephnerd5• 1 year ago

And we in the US about to embark on a similar crypto adventure with the EO for the Strategic Bitcoin Reserve [0].

This is what happens when top leadership at A16Z like Marc Andressen [1], Ben Horowitz [1], Scott Kupor [2] (first VC at A16Z and now head of OPM - the agency that gives DOGE it's teeth), and Brian Quintenz [3] (head of policy (ie. Lobbying) at A16Z as Head of the CFTC) become major backers of the current administration.

A16Z has been lobbying for deregulating the Crypto industry and defanging the CFPB for half a decade now [4][5] as they have $4.5B dedicated in crypto investments alone [6], which were largely underwater [7]

People keep talking about the Dark Enlightenment Tech Bro schpeil, and while significant, is basically a bunch of blowhards. The primary reasons you saw significant VC support for the Trump administration are

1. the proposed tax on unrealized capital gains tax for those with a net worth above $100M (heavily hits VCs like A16Z, Founders Fund, and YC)

2. the SPAC crackdown (shut down a major venue to unlock capital from zombie investments)

3. Crypto deregulation (as explained above)

[0] https://www.reuters.com/technology/trump-signs-order-establi...

[1] https://techcrunch.com/2024/07/16/andreessen-horowitz-co-fou...

[2] https://www.whitehouse.gov/presidential-actions/2025/01/sub-...

[3] https://www.reuters.com/world/us/trump-plans-pick-brian-quin...

[4] https://www.nytimes.com/2021/10/29/us/politics/andreessen-ho...

[5] https://www.forbes.com/sites/davidjeans/2022/10/17/andreesse...

[6] https://www.axios.com/2022/05/25/andreessen-horowitz-raises-...

[7] https://www.wsj.com/articles/andreessen-horowitz-went-all-in...

chgs• 1 year ago

That’s just grift to transfer wealth from the taxpayer to the Don’s favoured henchmen.

alephnerd5• 1 year ago

Other way around.

Trump had no shot until the proposed tax changes in early 2023 and competition with Sequoia lead much of A16Z's leadership (and other VCs) to invest in Trump's campaign.

Before that, A16Z, other VCs, and tech leadership tended to donate equally to both parties.

As I've mentioned multiple times before, Dem leadership screwed the pooch by alienating tech leadership who coalesced around Obama while overinvesting in failed outreach to legacy unions like the UAW and ILU.

Musk has always been an unsavory character, but he only really flipped to Trump after the Biden admin alienated him to try and get UAW support [0] - and now the UAW who Biden and the Dems tried to poach are now fully behind Trump and the GOP [1]

[0] https://www.wsj.com/politics/elections/how-elon-musk-broke-w...

[1] https://www.axios.com/2025/03/04/uaw-trump-tariffs-united-au...

mastazi• 1 year ago

Worth noting that adopting a currency as legal tender and keeping reserves of that currency are two different things. El Salvador has abandoned the former, your government wants to do the latter.

alephnerd5• 1 year ago

It's de facto the former as Crypto-first payments are increasingly accepted in the US AND the admin is considering giving crypto tax-free status exempt from capital gains.

jfengel• 1 year ago

It's hard not to see the "crypto reserve" as a step towards "you can pay your taxes in crypto". Which isn't quite the same as legal tender but it's infinitesimally close.

wslh2• 1 year ago

With the recent surge in memecoins support, I'm really curious how the SEC and the crypto industry can coexist moving forward.

alephnerd5• 1 year ago

Crypto Regulation largely falls under the CFTC (now headed by A16Z's head of lobbying) and CFPB (now disbanded by Kupor's OPM).

SEC manages regulations such as SPACs, public listings, and publicly traded securities - another thing A16Z has been lobbying to deregulate, but not directly related to crypto.

It was FTX and Coinbase that paved the way, but it's A16Z that's taking full advantage.

dexter0• 1 year ago

Key points:

Despite these profits, crypto has brought El Salvador more costs than benefits. The free publicity has been welcome, yet crypto-investment and crypto-tourism have been small beer. Gains in financial inclusion and from more efficient payments are meagre at best: the currency never really caught on. In 2022, when the hype was at its peak, a survey by CID-Gallup found that only a fifth of firms accepted bitcoin and just 5% of tax payments were in crypto.
Moreover, the policy cost $375m in all—from the Chivo rollout, subsidised transaction fees, bitcoin ATMs and more—according to Moody’s, a rating agency. That far exceeds the profits on bitcoin holdings, which could still evaporate. By delaying an IMF deal, the crypto experiment kept El Salvador’s risk premium high.

Loughla• 1 year ago

So this was just a way to shift more public dollars into private hands?

horrible-hilde• 1 year ago

yes

dgfitz• 1 year ago

The bulk of BTC is owned by like 50 people. It’s such a fucking joke.

ty68535• 1 year ago

375 minus like 287 in unrealized gains. My next question is are they still behind once you consider the market value of the ATM and other investments. I doubt it's a total write off.

rafram2• 1 year ago

Who’s realistically going to buy 400 or so bitcoin ATMs (must pick up in El Salvador)? ATMs aren’t a high-margin business.

greyface-2• 1 year ago

Whether or not it's classified as legal tender going forward, Bukele has indicated that he intends to continue amassing Bitcoin as a reserve asset: https://twitter.com/nayibbukele/status/1897019629702410551

dsr_• 1 year ago

High volatility is the thing that should be most avoided as a reserve.

ursuscamp• 1 year ago

That really depends in your time horizon

toomim4• 1 year ago

Not if the "volatility" is in the upward direction.

roenxi8• 1 year ago

I'm pretty open to the idea that their crypto experiment ended in failure because bitcoin must be a truly terrible reserve asset, but being assassinated by the IMF isn't really evidence of that. El Salvador doesn't seem to have independently changed their minds about the merits of their policy.

I might draw a very vague parallel with a gentleman who can't repay a mortgage and through various machinations the bank forces him to sell his beanie baby collection. The beanie baby collection might have been a success or a failure for him personally. Probably was a failure. But that isn't really what we're learning in this story.

And pointing out that they lose money on the bitcoin reserve is a bit of a non-sequiter. They all do that. Gold has storage costs, the USD inflates like crazy and sometimes the US sanctions you. The analysis has to be a bit deeper than just noting that money was lost, it is a tricky question of relative options.

tptacek3• 1 year ago

The article makes a case on the merits for the failure of the project, in terms of its uptake, the direct value generated, and the costs of its rollout.

roenxi8• 1 year ago

Those arguments could be levelled against any currency. Typically uptake is only 100% because the government has a "thou shalt accept this" policy. If it was practically voluntary then a bunch of businesses would operate on a barter system or private scrip. Even with the insistence of the tax office it takes regular crackdowns to stop alternatives springing up.

And it is even easy to argue that normal currency is value destructive, all the flows of money into crypto are implicit "I'd rather be burning energy than using USD" announcements.

Lerc• 1 year ago

I don't know, they say that they're up $250M but the total cost of the program was $375M. I presume the bulk of that $375 went into the $30 incentive balance. That amounts to quite an economic stimulus for cheap.

All in all, El Salvador has been doing pretty well economically. It's human rights that have been the worrying point.

stefan_• 1 year ago

I don't understand, it seems you and the IMF agree on bitcoin being a truly terrible reserve asset.

roenxi8• 1 year ago

I can certainly see why you would believe I am always right about everything, but the truth is stranger than fiction - sometimes even I am confidently wrong!

Just because I agree with the IMF doesn't make either of us correct. It was El Salvador's experiment and the IMF's motivations are highly suspect. They are globalist political actors, they aren't motivated by any particular love of the economies they intervene in or the people in them.

wmf• 1 year ago

Historically you could make money by holding Bitcoin for over four year but El Salvador gave up before that and they never bought much to begin with.

The other aspects like remittances and Bitcoin-based retail payments were always terrible ideas. Not surprisingly that's where their losses come from.

neither_color• 1 year ago

The legal tender experiment failed, the crypto experiment is ongoing. An entrepreneurial audience like this would be more charitable in interpretation if this was a company in the middle of a pivot.

jongjong• 1 year ago

Conspiracy theorists have been predicting the IMF getting involved in El Salvador since the day they got involved in Bitcoin. Those who read the conspiracy theory posts years ago are now rolling their eyes reading such articles.

jakejake2025• 1 year ago

It doesn't matter what El Salvador thinks of Bitcoin. For it to succeed it needs to be accepted by institutions such as the IMF. That's great that it sounds good in theory but if a currency isn't widely accepted it's a failure.

TechDebtDevin3• 1 year ago

1.4bn seems cheap, and its a loan that presumably will be guaranteed. So for 1.4bn dollars the IMF gets to call the shots for an entire country's economy.

Im surprised we dont see more private indvs playing the role of WB.

NicoJuicy• 1 year ago

Yeah, Greece didn't survive IMF.

Oh wait...

(Nobody remembers the long term success stories, just the short period pain)

TechDebtDevin3• 1 year ago

Im not even arguing against this type of lending, although it does seem predatory to a degree. Im surprised at how much leverage can be bought for 1.4bn $$, this is pocket change for most large banks/countries, im surprised the IMF doesn't have more competitors, especially if natural resources are on the table, and they always are.

dzonga• 1 year ago

yeah as an economy - you don't want to ever receive IMF money. Lots of African and Caribbean countries will attest to that. IMF money is like having the mafia control your money - the structural adjustments will kill the natural course of your economy and never recover.

That's why Chinese loans have been welcome for a lot of countries. they don't come with a lot of stipulations, such as removing subsidies for your farmers.

biophysboy• 1 year ago

Have any crypto experiments ended in success?

henrikschroder• 1 year ago

Well, tons of scammers have made tons of money, so technically, yes?

For the average person not so much.

PartiallyTyped• 1 year ago

Including current POTUS and their family :)

claudiug• 1 year ago

for the one that make money, yes :)

blindriver2• 1 year ago

I worked at a crypto company and left after I realized that 99% of crypto are scams. Either people get rugpulled or they get their wallets emptied by scammers, and I don't think Apple would have survived if the iPhone was a hotbed of scams. There's a tiny sliver of activity which isn't purely scams, like BTC or ETH but even then there's almost no real use case except the Greater Fool Theory, and I just don't think that's sustainable. I think at some point the entire industry is going to get rugpulled because there's still no inherent demand except selling it to someone else for more money.

brianwawok• 1 year ago

Yup. A lot of people got rich, but I can’t see it lasting much longer

daveguy• 1 year ago

Like I told my family recently:

I think people are going to start realizing that there's a lot more invested in crypto than it's worth. Trump putting the federal government behind a crypto reserve didn't intice new investors/investment. Not sure where the bottom is, but we might find out sooner than later.

The people who want crypto have it. The people who recognize it's not worth the lack of fraud regulation/protection and instability aren't going to suddenly start buying.

blindriver2• 1 year ago

but I can’t see it lasting much longer

I said this back in 2012, and I've been waiting ever since... That's why I decided to join the crypto company but left after seeing it from the inside of the actual space.

werdnapk• 1 year ago

Doesn't take working at a crypto company to realize 99% of crypto is a scam. Meme coins, ICOs and NFTs were the icing on the cake for me though.

chiefalchemist• 1 year ago

BTC aside, the rest are scams. As for BTC I went to this presentation at Princeton University in late 2024.

BTC isn’t perfect but often enough it’s better than centralized alternatives.

https://www.princeton.edu/events/2024/book-talk-resistance-m...

greyface-2• 1 year ago

The Princeton site doesn't seem to link to it, but the talk was recorded and published on YouTube: https://www.youtube.com/watch?v=8nKMM5OKiP8

eYrKEC2• 1 year ago

BTC _is_ the centralized alternative. It's a PUBLIC ledger and all the exchanges are following KYC.

kinakomochidayo2• 1 year ago

BTC in its current form is probably the biggest scam in existence right now. BTC does not work long term, as block rewards increasingly get cut in half and the transaction fees aren’t enough to incentivize the miners. It’s been well known outside the Bitcoin community, and slowly talked about within Bitcoin, with some core devs like Peter Todd talking about tail emission, but that would break the 21 million cap. Bitcoin is screwed.

https://www.cs.princeton.edu/~smattw/CKWN-CCS16.pdf

Smithalicious• 1 year ago

I also used to work in crypto professionally and quit over the clown show, but personally I saw lots of stuff that wasn't scams. There were a lot of scams though, very low ethical and professional standards across the board, just tons of stupidity and nativité... But even then there's tons of stuff possible that at least on philosophical principle I'm still really bullish on, and tons of interesting cryptographic tech is still coming out of there that will find a good home eventually.

merek• 1 year ago

For an excellent analysis of Bukele and life on the ground in El Salvador, I highly recommend Matt Lakeman's notes:

https://mattlakeman.org/2024/03/30/notes-on-el-salvador/

Specifically on Bitcoin:

This guide also told me that he immediately spent his $30 Bitcoin gift from the government on beer and hasn’t possessed a single Satoshi since.
I saw maybe four or five Bitcoin ATMs in El Salvador, including two Athena Bitcoin machines. I didn’t see anyone using them.
The guide, who I consider an articulate and strong supporter of Bukele, seemed to consider the president’s Bitcoin ambitions to be a weird, misguided, but ultimately trivial effort.

petertodd2• 1 year ago

I saw maybe four or five Bitcoin ATMs in El Salvador, including two Athena Bitcoin machines. I didn’t see anyone using them.

I've visited El Salvador quite a few times and traveled a decent % of the country, including non-touristy areas. I've seen plenty of Bitcoin ATMs in El Salvador. In some areas they aren't busy. But in other areas they have consistent line-ups of _locals_ using them. And yes, I said locals, not tourists. I'm not sure why the locals use them so much. But remittances is one possibility.

If all Bitcoin managed to do was force the likes of Western Union to keep their fees low via competition, it'd be a success for El Salvador. As of 2023, about 24% of El Salvador's entire GDP is remittances.

The guide, who I consider an articulate and strong supporter of Bukele, seemed to consider the president’s Bitcoin ambitions to be a weird, misguided, but ultimately trivial effort.

Of course, let's put all this Bitcoin stuff in perspective: Bukele's legacy will most likely be ending gang violence. I consider the Bitcoin stuff a mild success; ending gang violence has radically transformed the country for the better.

ionwake• 1 year ago

I dont check the price of BTC anymore to I just check if there is someone posting an article to HN about Salvador from mainstream media.

Jimmc414• 1 year ago

El Salvador invested approximately $269.74 million to acquire 5,900 bitcoins ($595 million) and secure $1.4 billion in IMF loans. I hope they can recover from this failure.

ramchip2• 1 year ago

Did you read the article?

Moreover, the policy cost $375m in all—from the Chivo rollout, subsidised transaction fees, bitcoin ATMs and more—according to Moody’s, a rating agency. That far exceeds the profits on bitcoin holdings, which could still evaporate. By delaying an IMF deal, the crypto experiment kept El Salvador's risk premium high.

toomim4• 1 year ago

I don't believe el salvador spent $375m on those things. I could believe that Chivo spent their VC money on that.

toomim4• 1 year ago

El Salvador makes $330m from a Bitcoin investment and the Financial Times calls it a "failure."

xiphias2• 1 year ago

The article doesn't get into the interesting part: Salvadorian government continued accumulating BTC. So far IMF didn't say anything specific, so the June review will be interesting to see if IMF continues with the loan or cancels the next trenches.

bobbybobbington• 1 year ago

The infrastructure is not set up yet, but the multi-nationals have good facilities for it. It's just like any currency, up one day, down the next, which is why I say it's long time past we did away with the concept of money. Not only is the concept of money outdated, it's not a natural phenomenon, other wise trees would give receipts. Living a life in a money world is not unlike living in a cloud cuckoo land, it's just as illusory. There's fish in the sea, crops give up seeds from the ground and barnyard animals reproduce, not a penny passed hands. The world has the education, if the Egyptians could turn a desert in to paradise more than 15,000 years ago, why can't we?

vrighter• 1 year ago

like pretty much every other state-sanctioned crypto experiment. Or, more subjectively, pretty much any crypto experiment, imo.

Roslyn211• 1 year ago

I have been through the hands of scammers, While trying to get my 275,000 USD scammed funds back, I fell into another big scam too. I finally got a solution after telling my friend about my situation She introduced me to these company that helped her husband to recover his scammed funds. I contacted them on : recoverydarek@gmail.com and they where able recovered my stolen funds back to me successfully .

o999• 1 year ago

One does not need an expert to predict a terrible failure of Bitcoin as a legal tender and for $30-worth of free BTC wallet.

But as a minority of reserve asset, Bitcoin might be a good idea, nobody bought bitcoin at any price whatsover and wasn't able to make a profit that beats US T-bonds for 4 consecutive years (please double check on this, it's not a financial advice), let only if they DCA their portfolio.

Of course such national reserve cannot make a large % of the total reserve as the risk is also high and wealth of the nation is not meant to be used in risky bets. 4 years is also not a very meaningful window for a 16 years old market.

El Salvador's crypto experiment ends in failure

Related Stories