Big things were promised when El Salvador adopted Bitcoin as legal tender last year — including a vast new source of wealth for business owners and the possibility of the country paying off billions of dollars of foreign debt.
The reality has been more mixed, with plans for a Bitcoin bond offering getting pushed back, and many merchants discovering their newfound wealth could be swiftly erased thanks to the cryptocurrency’s volatility. But the story hasn’t been all bad.
Even as Bitcoin suffered a crash over the past year, going from a high of more than $60,000 to a nadir of about $35,000 in June 2021, some crypto-savvy entrepreneurs figured out how to ride the waves. (The price of Bitcoin is now hovering around $40,000.)
We talked to some local business owners to learn how they managed to say one step ahead of the wild swings, and end up better off.
Manuela Velasquez, clothing and beauty item importer
Like many business owners in El Salvador, she started accepting payments in Bitcoin after the adoption of the currency as legal tender in September 2021. But early on, she wanted to investigate how crypto markets operate to get a sense of what she was dealing with. She consulted with other entrepreneurs who had more experience with digital assets.
“One of the first things I noticed is that it is a volatile asset, with value changing too quickly,” she told us. “I spent hours on the computer watching videos and reading specialized articles to understand it” along with consulting with friends. “That helped me to face the Bitcoin price crisis” over the past several months.
Velasquez says she also checks crypto investment websites and mobile apps “daily” to keep an eye on where the price is headed.
“When I saw the price begin to fall in early November, I decided that I would not treat Bitcoin payments as direct capital of the company, but as an investment in the future,” she said. And she made other strategic changes, including by shifting to keeping assets for immediate business needs in traditional currency, while leaving her Bitcoin in a separate fund.
When the price started to fall “I took advantage of the moment to sell Bitcoin and make the conversation” to lock in her gains, she said. She avoided using the country’s bug-plagued Chivo crypto wallet, and instead used another digital wallet. She ended up netting about $1,500.
“Since then, I have not touched any Bitcoin [and am] waiting for the best time to invest again,” she said.
Arturo Jiménez, private transportation business owner
Jiménez took a similar approach, treating the payments he received in Bitcoin as an investment asset. He did not rely on those funds as part of the budget for his business, and that helped him avoid losses. He also hired a professional to help him manage his crypto assets appropriately.
“I have known entrepreneurs who have lost thousands of dollars” by leaning too hard into using Bitcoin, he said. “In El Salvador not everyone knows how to use Bitcoin.”
“From September of last year to date, the Bitcoin payments I receive are between 20% and 25% of all company profits,” he said. All of that money stays squirreled away in an investment account.
“The rest of the profits, payments in dollars, are what I use to run the company. That functioning allowed me to survive these months, although it has not been easy to achieve it,” he told us. (El Salvador uses U.S. dollars as an official currency.)
Carlos Bonilla, crypto investor
While there was a learning curve for many business owners when El Salvador adopted Bitcoin, Bonilla was already prepared. Bonilla started investing in cryptocurrencies starting in 2016, and was well aware of the perils of treating crypto just like fiat currency.
He has also watched Bitcoin rise from just $600 when he initially invested to now in the tens of thousands of dollars. Over that time, there have been sudden plunges, but overall the cryptocurrency has been moving upward.
“In 2018 it went from the peak of $20,000 to cost $3,000,” he told us. “I was not expecting that drop, but I understood how the price fluctuation worked. That experience taught me that I should not analyze it in the short term, but understand it as a long-term investment asset.”
For Bonilla, the price fluctuations over the past few months are just part of the ride, and business owners should take them into account in how they use their Bitcoin. Despite the government treating the coin as legal tender, business owners need to view it as an investment, he said.
“I fully understand the negative experiences some people have had,” he told us. “What I recommend is to view Bitcoin and cryptocurrencies as high-risk investment assets with potential long-term gains, not as a trading asset.”
“The problem is that many people believe that it is a virtual dollar, when, in reality, it is an investment to generate long-term profits,” he added. He said entrepreneurs should not consider payments in Bitcoin to be working capital because they “cannot count on those payments as immediate capital.”
“If you are going to invest money in Bitcoin, it must be money that you do not need to use immediately,” he said.