Shockers, it turns out that El Salvador’s decision to Submit a legal tender for Bitcoin It wasn’t a great idea after all.
This week Fitch credit agency lowered Ranking El Salvador’s debt from CCC to CC about 14 months after the company’s president and his budding techno-authoritarian brethren, Nayib Bukele, made Bitcoin a nationally recognized legal tender. This credit ding, to me CoinDesk stems in part from the country’s embrace of bitcoin which likely limited El Salvador’s access to markets, and thus made it difficult for the country to fund bond payments.
In its report, Fitch said, “Tight financial and external liquidity conditions and highly restricted market access amid high financial financing needs” made a type of default “likely”. CC, for context, represents Fitch fourth worst The credit rating is seven marks below the AAA gold standard.
Despite the variety of microeconomic factors that led El Salvador to this point, CoinDesk cites January Report From rival credit rating agency Moody’s, which said differences of opinion over bitcoin are hurting the country’s ability to strike a deal with the International Monetary Fund. This dispute reportedly lowered the odds of Monday holding a deal needed to address the looming $800 million bond maturity in January 2023.
“Lack of funding from the IMF will significantly increase the risk of adverse credit outcomes,” Moody’s wrote. to me Reuters. Moody’s also downgraded El STheFedor Credit rating last year, in response to the country’s bitcoin laws, which Claims“weakened governance in El Salvador,” and raised tensions with international partners.
Bukele signed the so-called El Salvador Bitcoin Law In June 2021, making it the first country in the world to recognize Bitcoin as legal tender. This definition means that Salvadoran retailers can list their prices in bitcoin and citizens can use it to pay their taxes. As Gizmodo previously noted, bitcoin law is also a potential boon for the wealthy looking to avoid capital gains taxes on their crypto earnings. Upon passing the law, Bukele argued that bitcoin could improve the lives of the estimated 70% of Salvadorans who do not have access to traditional financial services.
At the same time, only about 55% of Salvadorans had access to the Internet in 2020 to me World Bank data, with a smaller stake likely to own crypto assets. In response to that glaring gap in accessibility, Bukele progress Every citizen gets $30 in bitcoin as an incentive to download and register the government’s crypto app “Chivo.”
Over a year later, it still looks like your average salvaRoleThey are quick to embrace cryptocurrency. march exploratory study A survey conducted by the Chamber of Commerce and Industry of El Salvador found that 86% of companies had never completed a transaction using bitcoin. Instead, more than a thousand Salvadorans filled the streets of San Salvador last September to Protest Bukele’s bitcoin law.
Regardless, Bukele is still apparently working on Bitcoin, with the leader even pressing forward on designs to “Bitcoin City“It features a massive mining operation powered by volcanic geothermal energy. Early conceptual images of the city show a sprawling metropolitan area covered in Trump gold with a central plaza that would look, you guessed it, a bitcoin symbol.
Bukele remained committed to bitcoin even as its value continued to decline in one of the largest and longest cryptocurrency declines ever. to put it in Perspective, in June, the total bitcoin holdings of the Salvadoran government It said It decreased 57% in value from the same period in the previous year. Where the average commander is supposed to cut his losses, instead, Bukele Bought dip. The Salvadoran government reportedly bought an additional 80 bitcoins over the summer.
“It is clear that President Bukele’s bullishness has not been dampened by Bitcoin’s nearly 60% YTD decline,” 22V Research technical analyst John Roque wrote in a note. seen by Bloomberg. “It wouldn’t surprise us if he remains bullish when bitcoin trades at our $10,000 target.”