Bitcoin Payments Slump to Record Low in El Salvador as HODL Mentality Surges

Key highlights:

Bitcoin payments in El Salvador’s Bitcoin Beach (El Zonte) have tanked
Tourists and residents are turning to card payments for commercial transactions
A hodler mentality and a deal with the IMF have triggered a nationwide slump in Bitcoin payment volumes for El Salvador

Five years after El Salvador designated Bitcoin as legal tender, payments using the cryptocurrency have slumped to previously unseen levels. Meanwhile, the country is still buying BTC despite inking a deal with the International Monetary Fund (IMF) to pause public-sector Bitcoin accumulation.

El Salvador’s Bitcoin payments dry up at El Zonte

Bitcoin Core contributor Jon Atack has revealed that El Salvador’s once-thriving BTC payment volumes in the surf town of El Zonte have tanked. Popularly known as Bitcoin Beach, El Zonte was the first town to embrace BTC in 2019 after an anonymous individual donated the cryptocurrency to back a local community initiative.

Rather than convert the BTC to dollars, organizers used it to pay workers, and in turn, businesses began accepting it for payments. El Zonte’s success laid the foundation for El Salvador’s pivot to make BTC legal tender in 2021, with an avalanche of tourists pouring in to see “ground zero.”

Jon Atack, who moved to El Salvador in 2022, disclosed that BTC usage for commercial transactions at Bitcoin Beach is now “practically non-existent.” Atack made a BTC payment at a restaurant for his lunch, and an employee told him it was the first Bitcoin payment since the start of the month.

“I was in El Salvador (El Zonte) in January for the whole month,” said Atack. “Bitcoin acceptance among merchants/staff was ubiquitous.”

Atack revealed that he also intended to tip in sats, Bitcoin’s smallest unit, but the worker told him she had forgotten how to use her Bitcoin app. The worker noted that she had seen the boom of BTC payments in El Zonte and the eventual decline over the years.

However, Atack added that tourists and visitors are now turning to card payments for commercial transactions.

Why are BTC payments in El Salvador tanking?

Right off the bat, Atack pointed to a raft of reasons behind the falling Bitcoin payment volumes in El Salvador. For starters, Atack cited a rising HODL mentality among locals looking to profit from Bitcoin’s price surge in the future as a reason for the reduction in the number of coins changing hands.

Furthermore, analysts say El Salvador’s government made Bitcoin acceptance voluntary, removing pressure from citizens to use the cryptocurrency as legal tender. Previously, businesses were legally required to accept Bitcoin when offered as payment, sending the payment volumes to sky-high levels.

However, an IMF loan deal saw El Salvador backtrack on some policies, making Bitcoin acceptance voluntary and removing its legal tender status. Furthermore, the deal also required El Salvador to stop voluntary public-sector Bitcoin accumulation.

Despite the deal, the government continues to report buying approximately 1 BTC per day. At press time, El Salvador holds 7,751 BTC in its treasury, with analysts branding the new purchases as consolidation from different government wallets.