El
Salvador became the world's first country to adopt Bit as legal tender in 2021, with a bold move hoping to promote financial inclusivity and attract foreign investment. However, according to the latest survey published by the Central Bank of El Salvador (BCR) in mid-April, the actual progress of this digital currency revolution seems far from smooth as expected.
Data shows that out of 181 registered Bit service providers in the country, only 20 (about 11%) are currently operational, while as many as 161 (about 89%) have ceased operations, undoubtedly casting a shadow over El Salvador's Bit experiment.
Nearly 90% Stopped! Data Reveals El Salvador's Bit Ecosystem Challenges
According to detailed data released by the central bank, among the 161 providers that have stopped operating, 22 were explicitly identified as failing to comply with the regulations on financial system supervision in the Bit Law.
The Bit Law sets clear compliance requirements for service providers, including implementing effective anti-money laundering (AML) programs, accurately recording financial status of assets, liabilities, and equity, and establishing cybersecurity systems consistent with the nature of services... These requirements are crucial for ensuring transparency and security of financial transactions, but for many small service providers just starting or with limited resources, meeting these standards could be a daunting task. Lack of sufficient professional knowledge, technical capabilities, or capital investment could make it difficult to meet regulatory requirements, ultimately forcing them to cease operations.
Compliance issues are a common challenge in the global cryptocurrency industry, with El Salvador's situation being particularly prominent, possibly due to its hasty implementation of a national-level Bit policy in a relatively short time. The lack of adequate preparation and transition period made it difficult for many operators to adapt to the new regulatory framework in time.
The 20 still operational providers include the government-supported Chivo Wallet, Crypto Trading & Investment, Fintech Américas, and others. Although a few businesses have successfully maintained operations, the overwhelming number of failures indicates that El Salvador still has a long way to go in establishing a healthy, compliant Bit service ecosystem.
Policy Shift and IMF Pressure
The policy of making Bit legal tender was a key economic initiative of President Bukele. However, while attracting widespread international attention, the policy also faced numerous doubts, especially from the International Monetary Fund (IMF).
To reach a $1.4 billion loan agreement with the IMF, El Salvador made certain policy adjustments. The legislative assembly canceled Bit's legal tender status and mandatory acceptance requirements and stipulated that the government would no longer directly participate as an intermediary in Bit transactions. These adjustments are seen as signals of moving closer to the traditional financial system, theoretically helping to reduce potential risks from the Bit policy.
Paradoxically, despite reaching an agreement with the IMF, the Bukele government seems to have not entirely abandoned its Bit vision. The government continues to purchase Bit, currently holding over 6,100 Bits worth more than $500 million. This government behavior appears somewhat disconnected from its commitment under the IMF agreement not to use national funds as an intermediary in Bit transactions, raising concerns about its fiscal prudence both domestically and internationally.
Further Reading: El Salvador Can't Directly Invest in Bit? Reaches $1.4 Billion Loan Agreement with IMF, Will Limit BTC Purchases
El Salvador's Bit Experiment at the Crossroads
The massive shutdown of Bit service providers in El Salvador provides valuable insights for global observers tracking national-level cryptocurrency adoption. This demonstrates that even with strong government support, the popularization and success of digital finance heavily depend on robust regulatory frameworks, mature market ecosystems, and the compliance capabilities of operators themselves.
El Salvador's Bit experiment is at a critical crossroads. It showcases the courage to embrace financial innovation while exposing potential regulatory and implementation challenges during rapid transformation. How to ensure financial stability and consumer protection while promoting digital finance development and finding balance within the international financial system will be a serious challenge for El Salvador in the future; meanwhile, it continues to provide important insights for global exploration of cryptocurrency regulation and application.
