El Salvador abandons Bitcoin as legal tender

Original Article ↗ Hacker News Discussion ↗

What actually changed in El Salvador’s Bitcoin law

  • Bitcoin is no longer legal tender in the strict sense:
    • Businesses are no longer obligated to accept it.
    • It can’t be used to pay taxes or settle government debts.
  • Citizens and firms can still use Bitcoin voluntarily, and the government says it will keep buying and holding BTC as reserves.

IMF loan and external pressure

  • Multiple commenters note the change was a condition for a ~$1.4B IMF facility, not purely a domestic policy reversal.
  • Some see this as prudent risk management by the IMF (don’t lend into a balance sheet tied to a highly volatile asset).
  • Others frame it as political leverage or “debt-trap” behavior, likening the IMF to an enforcer for the dollar system.

Adoption and everyday use

  • Survey cited: 92% of Salvadorans did not use Bitcoin in transactions in 2024, despite a $30 signup bonus and widespread wallet rollout.
  • 8% usage is viewed by some as “quite a lot,” but others argue that, given heavy incentives and legal-tender status, it’s clearly weak adoption.
  • On-the-ground anecdotes describe merchants rejecting BTC, broken terminals, and people cashing out bonuses then abandoning the system.

Bitcoin as currency vs investment

  • Broad agreement that BTC worked far better as a speculative asset than as daily money:
    • El Salvador’s holdings reportedly show large paper gains.
    • Commenters separate “good investment historically” from “good medium of exchange,” and say the latter clearly failed.
  • Core tension: a good currency should be relatively stable; a good speculative asset is not.

Deflation, volatility, and macroeconomics

  • Many argue a structurally (or effectively) deflationary asset is a poor currency:
    • Incentive to hoard, delay spending, and depress economic activity.
  • Bitcoin proponents counter that:
    • Modest deflation is preferable to fiat debasement;
    • Once widely adopted, BTC’s volatility would fall, similar to gold.
  • Long subthread debates whether small positive inflation is essential for growth or mainly a tool for states and creditors.

Technical and usability issues

  • Criticisms: slow base-layer confirmation, high and spiky on-chain fees, complexity, and poor UX for non‑experts.
  • Supporters point to Lightning and other layers, but skeptics note these are still niche and add new trust and complexity tradeoffs.

Broader framing

  • Some see the episode as proof that “Bitcoin as legal tender” was always doomed; others see it as a politically constrained experiment cut short by IMF pressure.
  • General convergence: Bitcoin has effectively settled into a “digital gold” / reserve-asset role, not a functioning national currency.