Friday 27 January 2023

El Salvador remains calm in the fall of bitcoin and the effect on its reserves

Between September 6, 2021 and May 9, El Salvador has accumulated 2,301 bitcoins for more than US$100 million.

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26 January 2023 - At The Banks - BCCR

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Q24N (EFE) The Government of El Salvador has publicly remained calm in the face of bitcoin’s fall by 60% from its all-time highs in recent days and the reduction in the value of its cryptoactive reserves, while President Nayib Bukele does not address the issue on his networks social -means by which it informs or announces something- since Wednesday.

El Salvador adopted bitcoin in September 2021 as legal tender, allocated more than 200 million dollars for its implementation and made it its main economic project.

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With the abrupt drop in the price of this cryptocurrency, the Government has shown no signs of backing down, as international organizations have suggested, such as the International Monetary Fund (IMF), and Bukele announced a new purchase for more than 15.3 million Dollars.

Between September 6, 2021, and May 9, 2022, El Salvador has accumulated 2,301 bitcoins for more than 100 million dollars.

The 10 purchases announced by President Bukele, of which no information is provided beyond the president’s tweets, range between 30,700 and 58,000 dollars.

The first consequence for El Salvador of the bear market is the fall in the value of its reserves by approximately 34%.

President Bukele published on May 10 about the possibility of selling the 500 bitcoins that he had just bought on the 9th.

“I could sell these coins right now and make almost a million dollars in just 11 hours, but of course not,” he wrote on Twitter.

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After that message, the president of the Central American country has not addressed the issue on social networks again.

EFE tried to find out the position of the Salvadoran government in the face of this fall in the value of bitcoin through a press contact from the Ministry of Communications, but no official statements were obtained.

In addition to economists and some actors from the Salvadoran opposition, the International Monetary Fund (IMF) was the first institution to call on the country to back down on the adoption of bitcoin as a currency.

While the evaluating agencies have reduced the country’s risk rating due to the “uncertainty” created by the adoption of the crypto asset and the high financing needs for the coming years.

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Moody’s recently warned of the possibility of a default on El Salvador’s debt that the country must repay in 2023 and 2025, noting the lack of a “credible plan” to deal with this debt.

Although the Salvadoran president’s commitment to cryptocurrency did not generate the country’s debt levels and financial problems to cover its own budget, this decision affected its image and the confidence of the aforementioned organizations.

One of El Salvador’s flagship projects is to build the bitcoin city, for which the placement of 1,000 million dollars in cryptocurrency-backed bonds was announced, which would also be an experiment to seek new forms of financing for the country.

The Minister of Finance, Alejandro Zelaya, said last January that the bitcoin bond issuance strategy “could be quite interesting as a mechanism for managing El Salvador’s debt and opens a new financing window for us to better manage our curve. of repayment”.

This issue was expected to take place in March, but Bukele announced his postponement to focus his attention on a pension reform, and Zelaya indicated that they were waiting for “the ideal dates” to “go on the market.”

On May 11, President Bukele recalled a message he published in June 2021 about bitcoin.

“One thing I’ve always admired about Steve Jobs is that he never looked at Apple’s stock price. He knew where his company was going. The stock market will follow, when he understands it,” Bukele wrote, adding “1 #BTC = 1 #BTC.”

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Q24N is an aggregator of news for Latin America. Reports from Mexico to the tip of Chile and Caribbean are sourced for our readers to find all their Latin America news in one place.

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