Small businesses in El Salvador were supposed to be one of the biggest beneficiaries of the country’s adoption of Bitcoin as legal tender. But the initial economic boost as customers rushed to buy items with Bitcoin gave way to disappointment as the price of the volatile digital asset crashed.
Daysi Moza, a clothing vendor at the Central Market of Santa Tecla, sold $7,000 worth of goods in Bitcoin from September to November, representing about 70% of the all of her sales during that period. She told us she left the funds in her digital wallet, the government-issued Chivo Wallet, on the expectation it could rise by as much as 10 times within a year.
Instead, Bitcoin suffered one of its biggest-ever drops, plummeting by nearly half at the beginning of January. Moza’s crypto holdings plunged to around $4,500, wiping out a good chunk of her clothing business earnings.
“I lost almost half of what I had invested. I tried to change what I had left into dollars, but I had difficulties with the Chivo Wallet,” Moza explained. “Nobody taught us what to do when the price falls.”
Championed by the Central American country’s President Nayib Bukele, the Bitcoin Law was enacted in mid-2021, when the cryptocurrency was in the midst of a historic rally. The price of a Bitcoin surged from about $10,800 in October 2020 to a high point of more than $61,000 just a year later — rising by roughly 500%. At the time, as many countries including the U.S. struggled to regulate crypto, El Salvador became the first nation to treat crypto as regular money.
While many crypto enthusiasts are fans of El Salvador’s bold move, other observers have described it as “pure folly.” The Chivo Wallet, which was offered to citizens pre-loaded with $30 worth of Bitcoin, has also been the target of numerous complaints over technical problems.
Another merchant who has struggled in wake of the Bitcoin crash is Marcela Avilés, owner of a banquet business in Santa Tecla. Many of her clients use Bitcoin regularly, and most paid for her services with the cryptocurrency between September and November. Like Moza, she left the crypto funds in her wallet on the expectation they would rise dramatically in value.
At first, things appeared to be going well — she noticed the value of her Bitcoin rose and netted her a healthy profit. But when she decided to exchange her Bitcoin for dollars through the Chivo Wallet in November, she got an error message. She was at first told she would have to wait a week for the transaction to be processed, and then the wait turned into three weeks. Finally, when the transaction went through on Dec. 20, the price of Bitcoin had dropped significantly and she recorded a loss of $8,000.
Cases of losses related to the crash in the price of Bitcoin and Chivo Wallet glitches are common among merchants in El Salvador. Another person who faced a similar situation was Juan Chávez, an ice cream vendor in Santa Tecla.
“I started receiving payments in Bitcoin just because it had to be done,” he told The Business of Business. "That's what the government said. In November I checked how much that was worth in dollars and saw that it was more than $3,000. I thought that the more Bitcoin I accumulated, the more money I would have."
Without doing more research, Chávez continued to receive payments in Bitcoin thinking that the money from his earnings would increase. Finally, when Juan decided to exchange his Bitcoins in January, he discovered that they were worth just over $2,000, a far cry from the amount he thought he had.
“I admit it was my mistake," he said. "But how was I to know that bitcoin could drop in price so much?"