Main Points:
- December 2024 IMF Agreement: In December 2024, El Salvador entered into a $1.4 billion Extended Fund Facility (EFF) with the International Monetary Fund, which included strict conditions restricting public sector involvement in Bitcoin, mandating that Bitcoin remain voluntary for merchants and that the Chivo wallet’s government support be phased out.
- Ongoing Accumulation: Despite the IMF’s stipulations, President Nayib Bukele’s administration has continued acquiring Bitcoin at a rate of roughly one BTC per day through the Bitcoin Office, growing its reserves from 6,101.15 BTC on March 4, 2025, to approximately 6,189.18 BTC by late May 2025.
- Technical Compliance Workaround: To technically comply with the IMF conditions, El Salvador structured its Bitcoin Office as an entity outside the defined public sector, allowing incremental purchases that fall outside the loan agreement’s performance criteria.
- Unrealized Gains: As of late May 2025, El Salvador’s Bitcoin holdings have generated an unrealized profit of around $386 million—a 132 percent gain since the Treasury initiated purchases in mid-2021—fueling political capital and bolstering public support for the government’s crypto agenda.
- Fiscal and Volatility Concerns: Critics argue that continued accumulation heightens fiscal vulnerability given Bitcoin’s price volatility, while proponents assert that strategic reserves and enhanced Lightning Network adoption could drive financial inclusion and economic growth.
- Investor Signals and Market Implications: Market analysts note that El Salvador’s perseverance may signal state-level confidence in crypto, presenting opportunities for investors seeking Bitcoin-backed sovereign assets, but caution that geopolitical headwinds and evolving regulatory landscapes could affect long-term returns.
- Key Upcoming Milestones: Looking ahead, the phasing out of Chivo wallet government support by July 2025 and the next IMF loan tranche in December 2025 will test the balance between preserving IMF relations and pursuing a Bitcoin-centric economic strategy.
Introduction: A Historic Pivot Collides with Fiscal Realities
In June 2021, El Salvador made headlines as the first country to adopt Bitcoin (BTC) as legal tender, a move championed by President Nayib Bukele as an impetus for financial innovation and inclusion. Over time, the government channeled a significant portion of its foreign reserves into Bitcoin, believing that a well-timed accumulation could generate substantial unrealized gains and attract foreign investment. However, by December 2024, concerns over fiscal stability and the macroprudential risks posed by Bitcoin’s notorious volatility prompted the International Monetary Fund (IMF) to condition a $1.4 billion Extended Fund Facility (EFF) on scaling back government involvement in crypto.
The IMF’s staff-level agreement required El Salvador to render Bitcoin voluntary for merchants—no longer mandatory for tax payments or wage disbursements—and to limit further public sector purchases. The deal also stipulated that the Chivo e-wallet, initially funded by the state, must have its government support phased out by July 2025. By early March 2025, El Salvador’s official Bitcoin wallet held 6,101.15 BTC. Yet, as of late May 2025, reserves swelled to roughly 6,189.18 BTC—despite the IMF’s explicit directive to halt additional government Bitcoin acquisitions.
This article examines the IMF’s conditions, El Salvador’s workaround via the Bitcoin Office, the on-chain and fiscal dynamics of continued accumulation, and the broader market and investment implications. It also explores the political calculus behind defiance, the potential impact on financial inclusion initiatives, and what lies ahead as El Salvador navigates between IMF support and its Bitcoin agenda.
Background: IMF Conditions and the EFF Agreement
In December 2024, after months of negotiations, El Salvador and the IMF reached a staff-level agreement under an Extended Fund Facility valued at $1.4 billion. The primary goal of the IMF’s intervention was to restore fiscal sustainability following concerns about El Salvador’s mounting debt, budget deficits, and the macroprudential spillovers of holding a large Bitcoin stake. The EFF conditions encompassed improving governance, reinforcing anti-money laundering controls, and—crucially—mitigating Bitcoin-related risks.
Under the agreement, Bitcoin would lose its status as mandatory legal tender for tax and wage payments, and businesses were no longer compelled to accept BTC. Public sector institutions were prohibited from making new Bitcoin purchases; existing holdings were to remain static. Furthermore, the Chivo wallet—El Salvador’s state-sponsored crypto payment platform—was to be gradually extricated from direct government funding by July 2025. The IMF viewed these measures as necessary safeguards against Bitcoin’s price fluctuations undermining fiscal buffers and jeopardizing the financial sector.
However, an assessment of performance criteria by the IMF’s Western Hemisphere Department in early 2025 cited that El Salvador was largely compliant with the deal’s structural benchmarks, including strengthened anti-money laundering protocols and improved public finance transparency. Despite compliance on many fronts, the Bitcoin purchases posed a conspicuous challenge. The IMF’s Rodrigo Valdes affirmed in April 2025 that El Salvador was meeting its performance criteria, but eluded clarifying on-chain purchases by the Bitcoin Office that took place outside the official public sector.
El Salvador’s Continued Accumulation: Defiance or Technical Compliance?
The Bitcoin Office Workaround
By March 4, 2025, El Salvador’s official Bitcoin reserves stood at 6,101.15 BTC. The IMF conditions forbidden “public sector institutions” from buying additional BTC; yet, almost immediately after the staff-level agreement was announced, El Salvador’s Bitcoin Office—established in 2021—continued to acquire Bitcoin. On May 27, 2025, the IMF announced that it would “make efforts to ensure that the total amount of Bitcoin held across all government-owned wallets remains unchanged.” Despite this public stance, El Salvador’s Bitcoin Office announced multiple purchases thereafter, raising its balance to approximately 6,189.18 BTC by late May 2025.
Critically, the Bitcoin Office operates outside the explicitly defined “public sector” in the EFF agreement. By structuring the Office as a separate legal entity, the government argued that purchases conducted by this entity do not technically constitute direct public sector acquisitions. This maneuver has allowed daily or near-daily purchases—often one BTC per day—to continue, evading the spirit if not the letter of the IMF stipulations. Sources suggest that the Bitcoin Office netted roughly 30 BTC in the 30 days prior to late May 2025, pushing total holdings to 6,190.18 BTC.
Bukele’s Defiant Messaging
President Nayib Bukele has publicly insisted that Bitcoin purchases will not cease. On March 4, 2025, he tweeted: “No, we will not stop. Even when the world isolates us and many ‘Bitcoiners’ abandoned us, we did not stop. We are not stopping now, and we will not stop ever.” This rhetoric has reinforced national pride among supporters who view Bitcoin as a vehicle for financial sovereignty and a hedge against dollar-pegged inflation.
Bukele’s narrative—rooted in technological optimism—emphasizes that daily accumulation, even if small relative to overall reserves, symbolizes unwavering commitment. He frames the Bitcoin Office’s purchases as a sovereign right to diversify reserves and drive crypto adoption, rather than as a breach of an IMF agreement. This positioning has cultivated broad popular support among a segment of Salvadorans who see Bitcoin as a means to formalize remittances, reduce transaction costs for the 70 percent of the population lacking bank accounts, and attract foreign fintech investment.
Unrealized Gains and Market Dynamics
Accumulated Profit and Balance Sheet Impacts
Since mid-2021, El Salvador has steadily acquired Bitcoin. The timing—buying lower in 2021–2022—has paid dividends as Bitcoin’s price recovered and surged to new highs in 2024 and early 2025. By late May 2025, Bitcoin Treasuries data indicated that El Salvador’s holdings were valued at approximately $678 million (6,189.18 BTC × ~$109,000 per BTC), representing an unrealized gain of roughly $386 million or 132 percent on its initial outlays. Through these gains, the government has fortified its reserves and reduced net public debt obligations—assuming Bitcoin prices remain stable or continue to rise.
This windfall has bolstered the administration’s fiscal reporting. In public disclosures, the government emphasizes that Bitcoin’s appreciation contributes to strengthening foreign currency reserves, thereby cushioning macroeconomic risks. However, given Bitcoin’s inherent volatility—periodic swings of 10–20 percent within days—the unrealized profit could swiftly evaporate in a bear market. The IMF and independent economists warn that overreliance on crypto gains might undermine fiscal stability if Bitcoin prices decline sharply, leaving gaps in funding for public services or debt servicing.
Market Reaction and Investor Signals
El Salvador’s resolve to continue stacking Bitcoin sends a notable signal to global investors: a sovereign state is willing to defy multilateral lender conventions to maintain crypto exposure. For institutional investors and hedge funds, this defiance suggests that Bitcoin’s perceived value extends beyond speculative demand—it may also serve as a political tool and a diversification instrument at the national level. Some analysts propose that El Salvador’s Bitcoin strategy could inspire other resource-constrained nations to explore similar diversification tactics, especially as high‐yield treasury products become scarce.
Yet such attractions come with caveats. Sovereign Bitcoin reserves lack the income streams typical of traditional sovereign wealth funds, such as dividends or interest. As El Salvador holds BTC outright, its balance sheet is subject to full mark-to-market volatility. In a scenario where Bitcoin prices plummet to sub-$50,000 levels, El Salvador’s reserves—once seen as an asset—could turn into a liability, worsening debt ratios. Some analysts advise that foreign investors exercise caution, acknowledging the potential for political over financial rationale driving the strategy.
Concurrently, proponents highlight that El Salvador’s adoption has triggered increased usage of the Lightning Network for remittances, reducing transaction fees from as much as 8 percent for traditional channels to near 1–2 percent. Tech startups in San Salvador are tapping into this momentum, launching Lightning-enabled merchant tools and cross-border payment gateways. This nascent ecosystem suggests that, aside from on-chain reserves, Bitcoin infrastructure projects could generate new revenue streams and foster economic diversification.
Political and Economic Implications
Domestic Political Capital
President Bukele’s unwavering stance has proven politically advantageous. His approval ratings, which surpassed 80 percent in early 2025, are bolstered by narratives of national independence and financial innovation. Rural and unbanked populations—who depend on remittances that surpass 20 percent of GDP—have embraced Chivo wallet incentives, such as sign-up bonuses and lower transaction fees, further legitimizing Bitcoin’s utility in everyday transactions.
However, opposition parties and civil society groups caution that enthusiasm must be tempered with caution. They argue that Bitcoin’s volatility could erode purchasing power for the poorest segments of society if merchants fail to convert BTC instantly to USD or local currency. Moreover, questions persist about the Chivo platform’s interoperability, user education, and the extent of merchant adoption outside urban centers. While urban tech hubs in San Salvador show robust Lightning Network activity, rural areas continue to rely on cash, leaving digital divides unaddressed.
Fiscal Sustainability Concerns
From a macroeconomic standpoint, El Salvador’s budget deficit for 2025 was targeted at 3.5 percent of GDP, partly funded through the EFF loan tranches. While Bitcoin gains contribute to bolstering foreign reserves, reliance on price appreciation introduces volatility into sovereign finances. IMF economists estimate that a 25 percent drop in Bitcoin’s value could wipe out roughly $95 million in unrealized gains, translating into a 0.4 percent of GDP swing in external reserves—eroding buffers meant to ensure debt repayment capacity.
El Salvador’s debt-to-GDP ratio stood at 70 percent in early 2025, with eurobond yields at 8.5 percent for the 2050 maturity. Any perception of fiscal mismanagement or excessive crypto-driven risk could push borrowing costs higher, impairing market access. By July 2025, when the Chivo wallet must be privatized or local government support withdrawn, the government’s ability to maintain liquidity—especially if Bitcoin prices decline—will be tested. The next IMF review in December 2025, tied to a $120 million disbursement, will hinge on adherence to agreed performance criteria, including the Bitcoin stipulations. C
Blockchain Adoption and Financial Inclusion
Chivo Wallet Evolution
Launched in September 2021, the Chivo wallet was a centerpiece of El Salvador’s Bitcoin rollout, offering users a $30 sign-up bonus in BTC to encourage adoption. As of May 2025, Chivo has registered over 5 million users—roughly two-thirds of the population—and processed over $6 billion in transactions, including remittances from Salvadorans abroad. Lightning Network integration has cut settlement times from hours to seconds and trimmed fees significantly, creating efficiencies for small-value transfers that are pivotal for low-income families.
Nonetheless, challenges remain. User surveys indicate that roughly 40 percent of Chivo users still convert received BTC to USD within minutes to avoid price volatility, reducing the velocity of on-chain Bitcoin circulation. Additionally, merchant adoption stands at 30 percent in urban zones but drops below 10 percent in rural municipalities due to limited internet connectivity and a lack of POS infrastructure. To address these gaps, the government has partnered with fintech startups to deploy offline Lightning kiosks and simplified QR-code payment modules targeting informal businesses.
Practical Blockchain Use Cases
Beyond payments, El Salvador has begun piloting blockchain for land titling in collaboration with civilian oversight groups and international donors. A blockchain-based registry prototype was launched in March 2025 to reduce property disputes and improve transparency in land transfers. Early metrics suggest that dispute resolution times have dropped by 25 percent in pilot municipalities. While still nascent, these efforts exemplify how blockchain can address longstanding bureaucratic inefficiencies.
Moreover, microfinance institutions in San Miguel and Santa Ana are experimenting with smart contracts on Ethereum’s Ropsten testnet to automate small business loans for agriculture. Under these schemes, loan terms, interest rates, and repayment schedules are codified in immutable smart contracts, reducing administrative overhead and enhancing auditability for lenders and donors. Preliminary results show on-time repayment rates climbing to 92 percent, versus 78 percent in traditional microloan portfolios. If scaled, such use cases could broaden blockchain’s reach beyond remittances, bolstering entrepreneurship and employment.
Investor Perspectives and Market Opportunities
Sovereign Bitcoin as an Asset Class
El Salvador’s continued accumulation has captured the attention of hedge funds, asset managers, and cryptocurrency innovators. Some institutional investors view sovereign Bitcoin reserves as an emerging asset class—analogous to “digital treasuries”—that could diversify portfolios currently overweight in bonds and equities. A few specialized funds are developing structured products that reference El Salvador’s Bitcoin yield curves, enabling accredited investors to gain exposure to potential sovereign crypto returns without direct on-chain interaction.
However, given the absence of established secondary markets for such sovereign Bitcoin products, liquidity remains limited, and pricing can be opaque. Counterparties must consider counterparty risk—i.e., El Salvador’s willingness or ability to deliver Bitcoin on demand—as well as legal jurisdictions governing such instruments. Prospective buyers are also monitoring whether IMF compliance issues may force a halt to further accumulation, which could alter the risk-return profile.
Crypto Infrastructure Investments
Parallel to Bitcoin reserves, El Salvador’s crypto roadmap includes investments in data centers powered by geothermal energy from the nearby Santa Ana Volcano to host Bitcoin mining operations. The government claims that by using renewable energy—predominantly from the volcanic cogeneration plant—it can mine Bitcoin with minimal carbon footprint, reducing operational costs in a region with electricity prices averaging $0.12 per kWh. These mining initiatives aim to capture a slice of Bitcoin’s block rewards to fund public projects and reinforce the national digital infrastructure.
Early estimates project that a 50 MW capacity mining facility could yield roughly $10 million annually at current network difficulty levels. Furthermore, excess heat from mining rigs is slated to warm greenhouses and desalinate brackish water, supporting agricultural and potable water projects. While the economic viability hinges on Bitcoin price and mining difficulty, the model showcases a novel convergence of renewable energy and blockchain operations.
Risks, Critiques, and Long-Term Outlook
Volatility and Fiscal Exposure
Despite the promise of high returns, Bitcoin’s historical volatility—plunges exceeding 50 percent within months—poses acute fiscal risks for a small economy heavily invested in a single digital asset. Economists caution that a precipitous price decline could erode foreign reserves, forcing austerity measures or inflationary money printing to cover budget shortfalls. The IMF has consistently emphasized that macroprudential buffers must not be compromised by speculative asset holdings.
Moreover, El Salvador’s credit rating—currently BB- (negative)—could be further downgraded if international investors perceive that Bitcoin speculation is crowding out essential spending on education, healthcare, or infrastructure. Given that roughly 30 percent of government revenue in 2025 is projected to come from taxes on digital service exports and remittances, any erosion of merchant confidence in Bitcoin could disrupt revenue streams.
IMF Leverage and Future Reviews
The IMF’s leverage rests on disbursement tranches tied to performance criteria. In June 2025, El Salvador is expected to receive a $120 million tranche, contingent on meeting benchmarks that include limiting public sector Bitcoin exposure and de-politicizing the Chivo wallet. By July 2025, official government support for Chivo must be withdrawn or privatized to the satisfaction of the IMF. Failure to meet these criteria could result in delayed disbursements, jeopardizing budget stability.
Looking further ahead, the IMF’s next formal staff-level review is slated for December 2025. At that juncture, success will hinge on El Salvador’s adherence to fiscal consolidation targets, progress in privatizing the Bitcoin Office’s operations, and continued implementation of anti-money laundering frameworks. Observers expect that if El Salvador can demonstrate sufficient separation between the Bitcoin Office and core public finances, the IMF may soften its stance—particularly if Bitcoin market fundamentals remain robust.
Conclusion: Balancing Innovation and Prudence
El Salvador’s continued Bitcoin accumulation amid IMF stipulations represents a landmark experiment in sovereign adoption of digital assets. By forging a technical workaround through the Bitcoin Office, President Nayib Bukele has asserted state-level confidence in Bitcoin’s long-term value proposition, betting on unrealized gains and nascent blockchain infrastructure to spur economic growth. The government’s ability to maintain this strategy rests on Bitcoin’s volatile price trajectory, successful privatization of Chivo wallet operations, and sustained IMF cooperation through performance compliance.
For cryptocurrency investors, El Salvador’s actions offer both inspiration and cautionary lessons. The notion of a “digital treasury” highlights Bitcoin’s potential as a diversification tool—but also underscores the hazards of concentrated exposures. Prospective investors must balance the allure of sovereign backing against liquidity constraints, jurisdictional risks, and the unpredictability of geopolitical shifts. Should El Salvador’s blockchain initiatives—ranging from Lightning Network remittances to land titling—achieve scalability and positive social impact, the world may witness a new paradigm of blockchain-driven development. However, if Bitcoin prices tumble or IMF relations sour, the narrative could swiftly pivot to a cautionary tale of overreach.
In the broader context of emerging markets, El Salvador’s experiment will be closely monitored. It challenges traditional notions of sovereign reserve management and tests the limits of multilateral lender flexibility. The next six months—culminating in the July 2025 withdrawal of Chivo wallet support and the December 2025 IMF review—will be pivotal. Until then, El Salvador’s Bitcoin odyssey remains a high-stakes demonstration of innovation pitted against financial prudence, with lessons that could reshape global perceptions of crypto’s role in national economic strategy.
