El Salvador and bitcoin, because it risks becoming the first “crypto default” – Corriere.it

A little over a year has passed since September 7, 2021, when with the Ley bitcoin El Salvador was the first country to adopt virtual currency as legal tender. The law, proposed by President Nayib Bukele, establishes that all economic agents must accept exchanges with cryptocurrency and all the prices of products for sale must be expressed in dollars and bitcoins. A bet that after more than 14 months does not seem to pay off. Bitcoin, which was already in crisis, in fact sank further in the last month after the bankruptcy of the crypto exchange Ftx. A collapse that risks sending many investors into the red, starting with El Salvador.

On November 17, President Bukele announced on Twitter that he intends to resume the race to buy cryptocurrencies, despite the fall of Ftx, by buying one bitcoin a day and without specifying when the accumulation plan will end. On Nov. 22, Bukele’s administration sent a bill to El Salvador’s Congress that would allow it to sell $1 billion in volcano bonds, the world’s first cryptocurrency sovereign debt product, to invest in building a Bitcoin city.

A crypto asset that has lost 60% of its value

When El Salvador bet $425 million on Bitcoin, the cryptocurrency was trading at an all-time high of $47,000. Today, it hovers around $16,000. Furthermore, Bukele’s choice to focus on cryptocurrency has made the country appear as a risky place to invest. The Bitcoin plan has also strained relations with the International Monetary Fund, which has urged El Salvador to revoke its status as a legal lender of bitcoin. for major risks to financial and market integrity, financial stability and consumer protection. El Salvador’s Bitcoin holdings have lost 60% of their value: the country’s 2,381 bitcoins are worth just over $40 million at current prices, far below the roughly $105 million the government paid to buy them , according to calculations made by Bloomberg.

The default risk

The cash-strapped government. And the losses from the bitcoin gamble are costing the country dearly. As he explained the Economist in a recent article, analysts and creditors fear El Salvador will not be able to service its debt, including about $667 million due in January. To reassure markets, the government bought back $565 million of its sovereign bonds in September. But in the same month the rating agency Fitch downgraded the country. In recent days, the government announced that it will carry out a second buyback of sovereign debt bonds maturing in 2023 and 2025, trying to appease the markets that fear the country’s debt default. The government has set the ceiling for the buyback at $74 million. It is not known exactly how much Bukele has invested in bitcoin, but based on his own social media announcements, losses are estimated to be in the order of $70 million, explained the economist at the Central American Institute for Studies Fiscals (ICEFI), Ricardo Castaneda, to the Spanish newspaper El Pais. A figure that corresponds to almost the entire budget of the Ministry of Agriculture in a country where half of the population suffers from food insecurity, added the economist.