Opinion: El Salvador’s political clown show is looking really dangerous for bitcoin prices

The president of El Salvador, Nayib Bukele, legalized bitcoin in the 2021 auction and continued to buy it with public money. Now, according to the website nayibtracker.com, El Salvador has spent $107 million buying 2,381 bitcoin tokens.JOSE CABEZAS/Reuters

Quick question: If I take $100 million of your money and then turn it into $50 million, would you like more or less?

That is the question that the president of El Salvador, Nayib Bukele, would be asking himself, about what must be the many nights that he has trouble sleeping.

In 2021, Mr. Bukele made Bitcoin legal tender and continued to buy it with public money. Now according to the website nayibtracker.comEl Salvador has spent US$107 million in the purchase of 2,381 bitcoin records

There is little news about what the country has done with all those coins. But the fact that Mr. Bukele tweeted as recently as this month that El Salvador has bought more bitcoin tokens suggests that the country has not been selling. And with the recent cryptocurrency crash, those 2,381 tokens are now worth only about $50 million.

Market cycles come and go, and there could come a day when a bold bet like that pays off.

But voters have short time horizons. Every day that Mr. Bukele’s bitcoin investment is so submerged in the water is a small chip in the patience Salvadorans have for what is, at best, man-made adventurism and, at worst, his clown show.

And then, because El Salvador now has so much bitcoin under the thumb of Mr. Bukele, what ends up happening to that stash that has a huge influence on the market as a whole?

In other words, the price of a bitcoin is linked, however loosely, to Salvadoran politics and the Bukele government. And that’s bad because in El Salvador anything can happen.

Mr. Bukele once brought soldiers into the legislature to put pressure on lawmakers. Under his command, the government replaced Supreme Court justices with loyalists and arrested suspected gang members in what Human Rights Watch has called a “arbitrary” way.

While Western leaders have latched on to that, Bukele’s approval ratings remain very high domestically. But the adoption of bitcoin in El Salvador had sparked the largest protest ever against Bukele.

And rule number 1 in politics is that nothing lasts forever. That’s especially true when, like Mr. Bukele, he once called himself a “dictator,” and people couldn’t tell if he was joking or not.

Dan Restrepo, a former adviser to US President Barack Obama, has linked Bukele’s current political dominance with future instability. saying“Unchecked power rarely ends well in the region.”

It also rarely ends well outside the region. Look at Sri Lanka. Former President Gotabaya Rajapaksa used to be a war hero. But once he began expanding his powers and appointing relatives to official positions, the events of this month seem almost preordained: when a mob stormed his palace and he scurried off into exile like a beaten dog.

And the spark that incited that mob? The same problems that impoverished El Salvador is currently on the brink of: economic collapse and default on debt payments.

Mr. Bukele doesn’t even need to be kicked out completely for something to happen to El Salvador’s bitcoin stash.

For Bukele, bitcoin is nothing more than the current shiny object that he waves while dancing in his gong show. Its importance will diminish if problems in other areas increase.

Another rule in politics is that policies that are pursued with effort and tears, such as reaching consensus in a divided legislature to pass laws, tend to last. Policies followed by a stroke of the pen, such as US presidential executive orders, do not, as they are easily undone.

Since Mr. Bukele has completely subverted the democratic process in El Salvador, everything he does is with a stroke of the pen.

A Salvadoran journalist recently commented that he was watching a soccer game when an editor sent him to the legislature to cover the introduction of his country’s bitcoin bill. When the bill became law, the football game was still in progress.

There could come a day when Mr. Bukele, faced with other problems, decides to sell the 2,381 bitcoin tokens as easily as he had decided to buy them.

Let us not forget that, amidst the turmoil of Venezuela’s disputed 2018 elections, the country’s much-hyped “petro” digital currency seems to have somehow disappeared.

A sale of El Salvador’s 2,381 units could account for as much as 4 percent of bitcoin’s 24-hour trading volume, depending on the day. It’s not an amount that would matter that much in a normal market. But this is not a normal market.

Bitcoin has plunged about two-thirds from its high of almost $70,000 last year. The broader crypto market has been littered with falling dominoes of over-leveraged interdependent companies.

In this context, 4 percent can matter a lot and investors, even if they don’t want to, should be attentive to what is happening in El Salvador.

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