Almost a year ago, on Sunday (June 5), President Nayib Bukele announced that El Salvador would make bitcoin legal tender, on par with the US dollar.
With bitcoin at $36,000 that day, things looked even better on the morning of September 7, when the law went into effect, with the cryptocurrency above $52,600. Tonight, not so much. Bitcoin dropped nearly $10,000 during the day, recovered to $46,800, and topped $68,000 two months later. On its anniversary, bitcoin hovered around $30,000.
That is the least of El Salvador’s problems with its national cryptocurrency. Plans for a much-touted $1bn bitcoin-backed bond, at rates well below traditional sovereign debt and incorporating a mechanism that would pay well if bitcoin were to explode, have fizzled out.
And with it, the possibilities of the country to make the payment of the 800 million dollars in Eurobonds that mature in January 2023 without the help of the International Monetary Fund (IMF).
The IMF had been relatively close to agreeing to a $1bn loan to cover bond payments before the decision to make a highly volatile digital asset legal tender. But he immediately made it clear that he considered the decision reckless and that the loan would not take place as long as bitcoin remained on an equal footing — legally — with the US dollar that El Salvador also uses.
Along the way, the floor collapsed under El Salvador’s traditional, high-interest-rate bonds before Bitcoin, as ratings agencies Fitch’s and Moody’s cut the nation’s credit rating well below junk status, citing the Bitcoin experiment as a big part. of the reason
The yield on its three-year notes has quintupled in the last 12 months, topping 42%. Taking into account the yields of other bonds and financial instruments, which have not done so badly, it means that there has been “a fall of more than 50%” in the price of their titles, according to El Economista.
Never-enthusiastic citizens, meanwhile, have voted with their feet. The state-issued digital wallet Chivo saw virtually no new users in the first quarter of 2022, with less than 20% using it after receiving the initial $30 incentive, according to the National Bureau of Economic Research (NBER). That group also found that only 20% of merchants accept bitcoin, 5% of sales are made in bitcoin, and a dismal 2% of remittances are made in bitcoin.
A president as popular as Bitcoin is not
Bukele’s popularity is an extraordinary 86.8% according to La Prensa Gráfica, even as the country responds to a wave of gang violence that he responded with a massive raid and arrest of suspected gang members.
One of the only areas in which it is unpopular, according to a Central American University (UCA) survey, is bitcoin, which 83.9% of respondents said has brought little or no benefit to their families.
“We see that it is one of the decisions… one of the main ones, that people realize has been taken behind their backs, in which the majority do not agree,” said Laura Andrade, rector of the University Institute of Public Opinion of the UCA (IUDOP), which conducted the survey.
Bitcoin City Water Concerns
Considering that the Bitcoin city that the president revealed would be built with some of the proceeds from bitcoin bonds was going to be powered largely by clean geothermal energy (also known as the volcano bond), he certainly seems to be bugging. to many environmentalists.
“Bitcoin City is going to have a severe impact because it is going to demand drinking water and in the east of the country that is a problem,” said march leader Rodolfo Calles, according to ElSalvador.com. “In addition, where it will be built, it will have an environmental impact on natural resources.”
It doesn’t sound like it’s such an urgent issue, as bitcoin’s bond isn’t likely to be issued any time soon, with the cryptocurrency stuck at $30,000 for months and the world economy in very shaky shape.