El Salvador’s big bet on Bitcoin has hit a snag: nearly all the crypto firms it registered aren’t actually playing by the rules.
Nearly 90% of Bitcoin (BTC) service providers registered in El Salvador are not operating, according to a recent report by El Mundo, which cited data from the Central Reserve Bank, showing that out of 181 companies officially registered to offer Bitcoin services in the country, 161 are marked as “non-operating.”
That’s about 89% of the total. Only 20 firms are still active. These include the government-backed Chivo Wallet, among others.
El Mundo adds that at least 22 of the inactive providers may have failed to meet the regulatory standards outlined in Article 4 of the Bitcoin Law Regulation, which requires crypto businesses to operate with “high standards of integrity and honesty.” Providers are supposed to have anti-money laundering programs, clear records of assets and liabilities, and cybersecurity systems adapted to the nature of the services offered.
It’s unclear how many others are behind on compliance, or whether enforcement is underway.
Breaking paradigms of past
The numbers paint a stark picture of the current state of Bitcoin in El Salvador. Back in 2021, the country became the first in the world to make Bitcoin legal tender. It was a move that drew global headlines and crypto industry praise, but also concern from traditional financial institutions. President Nayib Bukele, a self-described “CEO of El Salvador,” argued that the policy would attract tech investment, lower remittance costs, and bring banking services to the unbanked.
Como toda innovación, el proceso del #Bitcoin en El Salvador tiene una curva de aprendizaje. Todo camino hacia el futuro es así y no se logrará todo en un día, ni en un mes.
Pero debemos romper los paradigmas del pasado. El Salvador tiene derecho a avanzar hacia el primer mundo.
— Nayib Bukele (@nayibbukele) September 6, 2021
The law made Bitcoin legal tender alongside the U.S. dollar. It also required all businesses to accept it as payment, unless they lacked the means to do so. The government even launched its own digital wallet, Chivo, and handed out a $30 bonus in BTC to citizens who signed up.
Still, things didn’t go smoothly. The wallet faced technical issues, adoption was limited, and a year later, studies suggested that most Salvadorans had stopped using it altogether.
In a commentary for crypto.news, Hon Ng, chief legal officer of cryptocurrency exchange Bitget, which also secured crypto license in El Salvador, agreed with the data from El Mundo, saying it “highlights some significant challenges in the rollout of the Bitcoin Law.”
“With over 88% of Bitcoin-related companies still non-operational, it’s evident that there are infrastructural and institutional hurdles to address. While the legislation shows El Salvador’s vision to become a ‘crypto hub,’ further regulatory development may be required to effectively support the local ecosystem.”
Hon Ng
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IMF’s opposition
By 2022, the Bitcoin Law had become a major sticking point in negotiations with the International Monetary Fund — an essential financial backer for El Salvador — as the country sought a $1.3 billion agreement. The IMF, in turn, made no secret of its concerns over the policy.
It warned of risks to financial stability, consumer protection, and the country’s overall fiscal health. In a public statement, the IMF recommended that El Salvador “narrow the scope of the Bitcoin law by removing Bitcoin’s legal tender status.”
For a while, the Bukele administration resisted. But eventually, the country’s Legislative Assembly introduced quiet but significant changes. The state was no longer required to be involved in Bitcoin transactions. Businesses were no longer required to accept BTC. In effect, Bitcoin stopped being enforced as legal tender, although the government didn’t say it in so many words.
Still, the government hasn’t backed away from Bitcoin completely. Quite the opposite. President Bukele has continued to publicly announce Bitcoin purchases, and says the country now holds more than 6,100 coins — valued at over $500 million. He recently claimed the portfolio was in the green. But the exact source of funding remains murky. Critics worry that the state may still be using public funds for purchases, something the IMF had reportedly asked El Salvador to avoid.
Questions to be answered
Now, with the majority of registered Bitcoin providers inactive, it’s unclear how much of the country’s crypto infrastructure remains functional. The registry data doesn’t explain why so many firms have gone quiet.
Bitget’s Hon Ng told crypto.news that the low low rate of active providers might be a “combination of several factors, with a significant issue being the gap between the legal framework and the actual business environment in El Salvador.”
“Although the Bitcoin Law is intended to be progressive, some aspects may not fully appreciate how startups and mid-sized financial service providers operate in the country.”
Hon Ng
Ng went further to note that the Bitcoin Law mandates that companies establish tailored cybersecurity programmes, adding that many crypto firms, especially small-medium sized firms, “lack the resources to meet these standards, particularly with the current uncertainty in user demand.”
“This, combined with regulatory ambiguity and limited mainstream adoption, can lead to situations where companies initially engage with optimism but later become inactive as they encounter practical challenges.”
Hon Ng
The government’s Bitcoin Office is still promoting the initiative online, and there are still plans — at least officially — for the so-called Volcano Bonds, a Bitcoin-backed tokenized bond offering backed by stablecoin issuer Tether. But those plans have been delayed multiple times. And outside of Chivo and a few private platforms, there’s little sign of a vibrant ecosystem.
El Salvador’s Bitcoin story may not be over. But nearly three years in, with just 20 providers still running and many others falling short of regulatory standards, the country’s big crypto experiment looks a lot smaller than it once did.
Read more: Bitget secures full licensing in El Salvador for crypto services
