Last year El Salvador exploded on the Bitcoin scene when it legalized it as legal tender in the country. Since then we have seen or read about all of its plans and actions that have taken place to try and cement its place as the Bitcoin capital of the world. As it has announced these plans it has been met with skeptics about if what they were saying/promising was possible for the country. El Salvador is considered a developing nation so it does not have the wealth or high-skilled employees that developed countries rely on and benefit from. While they may not have wanted to admit to it this was going to cause headwinds for the country.
Probably the biggest headwind that the country has faced this year has been the price of Bitcoin. For the last few months, the price has been stuck and is just moving sideways. This range is roughly 30-40% away from the all-time high which is also not the best thing for El Salvador to attract people to invest in a Bitcoin economy. When you add these issues together it exacerbates the issue that El Salvador was going to run into with lenders. The World Bank, the IMF, and many of the other large lenders that lend money to developing countries warned El Salvador about its adoption and the plans it had to further invest in Bitcoin. The country needed Bitcoin to regain form to offset the possible loss of these lenders however the appetite for a new type of bond tied to crypto has evaporated.
While the bond idea isn't dead it has been postponed for now. El Salvador wanted to raise $1 billion and invest $500 million of it in BTC and the other $500 million in infrastructure and Bitcoin mining. The idea was to pay back the bondholders over five years as the country liquidated its initial $500 million BTC purchase. This bond sale was always going to be interesting to watch as it was going to be heavily scrutinized but now we will have to wait.
Other issues have arisen since this bond sale was first discussed and announced. A particular issue that seems to have caused a divide in the BTC community is one that I have written about before and that is the President of El Salvador, Nayib Bukele. President Bukele is the first millennial President who has made his millennial attraction part of his image. This is extremely different than how politics and running a country is typically handled and has led to issues within his own country. His response has been equally concerning as he has brought the military with him into the Congressional Building to pretty much force the opposition to vote the way that he wanted them to. He has also negotiated with gangs in the country to lower the number of deaths by letting inmates run the jails/prisons and look the other way on drug movements. These issues and responses he has given are just not a good look for the country helpful in selling Bitcoin bonds.
The point that people have made against him though that sticks out to me the most is how he has been purchasing Bitcoin for El Salvador. While you or I might use our phone to purchase it there is a big difference in the amount of money tied to our phone and the network it runs on. With a President purchasing Bitcoin for the country off of a cellphone a vast array of issues could go wrong that people have pointed out. The biggest of them is that he has tied the government's financial accounts to a cell phone and then to whatever exchange he is using. While billionaires can even do the same thing most of them don't. Even if they do they do not have their company's accounts tied to their phone as President Bukele does. If a hack takes place of his phone that means the person has the El Salvador Finance Ministry had at its disposal a huge issue.
Each of these issues by itself could be addressed or even ignored however the sheer number of them is piling up. President Bukele is trying to raise an enormous amount of money from North America, Europe, and Asia and needs to be able to persuade these investors that not only will the funds be safe but that this idea of a Bitcoin economy is going to be stuck with for the foreseeable future. Since he is in essence trying to replace the largest lenders in the world with people that are not near as wealthy it is a difficult task. We have also seen different reactions from different countries this year about crypto and regulations that may/could face in the foreseeable future. When you add in rampant inflation and the other economic issues going on right now it does make sense to postpone the bond sales as the investors he is targeting are not in a great position right now.
Please know I am not a financial advisor I am just someone who picked up on a trend and wanted to express it! Makes sure you always do your own research and never invest money you cannot afford to lose! If you enjoyed this article and would like to further support me below are a couple of referral links that if you used when signing up I would appreciate it! Also, follow me on Twitter @Cje95_
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