El Salvador, the first country to adopt Bitcoin as legal tender, is set to shut down or sell its government-run crypto wallet, Chivo, as part of concessions tied to a $3.5 billion funding deal with the International Monetary Fund (IMF). Under the IMF deal, the Chivo wallet will be either privatized or shut down entirely, and taxes will be payable in U.S. dollars instead of Bitcoin. This marks a turning point in the nation’s cryptocurrency experiment which started in 2021 under President Nayib Bukele’s leadership.

Launched in September 2021, Chivo was designed to promote Bitcoin adoption across the country. New users were offered $30 in Bitcoin as a sign-up incentive. 

Despite this push, the wallet failed to gain widespread traction. By 2022, over 60% of users who received the incentive had not made any transactions, and a 2023 survey found that 88% of Salvadorans had not used Bitcoin in the past year.

The IMF has long expressed concerns over El Salvador’s Bitcoin policies, citing the cryptocurrency’s high volatility and financial risks for businesses and individuals. To secure the $3.5 billion deal—$1.4 billion of which comes directly from the IMF—El Salvador has agreed to make several compromises. These include limiting Bitcoin-related activities and transactions by the government and public sector as well as making Bitcoin acceptance in the private sector voluntary. Once implemented, businesses will have the choice of whether or not to accept Bitcoin payments.

Despite these concessions, the Bukele administration remains committed to Bitcoin as part of its broader economic strategy. Bitcoin remains legal tender, and private Bitcoin wallets will continue to operate, ensuring that individuals who wish to transact in Bitcoin can still do so.

El Salvador also plans to continue purchasing Bitcoin for its strategic reserves, potentially at an accelerated pace. Currently, the government is acquiring approximately one Bitcoin per day and holds 5,969 Bitcoins valued at nearly $596 million. Plans to further develop Bitcoin capital markets and educational initiatives remain in place.

While the Chivo wallet experiment may be ending, El Salvador’s long-term Bitcoin ambitions persist. The government’s sustained purchases underscore its belief in Bitcoin's potential as a financial tool. However, the IMF deal highlights the importance of balancing bold innovation with economic stability, particularly under global scrutiny.

With El Salvador rethinking its Bitcoin policies, the nation continues to offer insights for other countries navigating cryptocurrency adoption. The handling of Chivo will be a critical test of how to balance progress with practicality while keeping Bitcoin central to its identity.