Nayib Bukele Bitcoin: Why is El Salvador’s president biding the country’s economy on Bitcoin?

2022-01-27 16:26:00

El Salvador purchased 410 bitcoin worth $15 million as the cryptocurrency’s price plunged.

“El Salvador just bought 410 #bitcoin for only 15 million dollars,” the country’s president Nayib Bukele tweeted on Friday.

Bukele, one of the biggest promoters of cryptocurrencies, has turned the Central American country, with an average GDP per capita of less than $4,000, into one of the biggest drivers of cryptocurrencies.

In June 2021, Bukele promoted a legislative vote to adopt Bitcoin as legal tender in El Salvador. Besides him, many lawmakers claimed that Bitcoin acceptance could bring unbanked citizens into the economy and facilitate cross-border payments. Critics, however, called the move irresponsible.

El Salvador’s president referred to the sale of cryptocurrencies, saying, “Some guys are selling very cheaply.”

Bukele’s commitment to Bitcoin has sown distrust among citizens and in global financial markets.

However, Bitcoin has plummeted recently, triggering a sharp pullback from investors, which has hit the most valuable parts of the stock market, such as technology stocks.

How does bitcoin impact El Salvador’s economy?

Bitcoin has fallen 20% in the past week and has lost nearly 28% this month. It has fallen nearly 50% from its all-time high of around $69,000 in November, putting it firmly in bear market territory.

According to Bloomberg, El Salvador holds at least 1,801 bitcoins worth about $66 million as of Jan. 25, or 2% of the country’s listed 2020 reserves. (At Bitcoin’s all-time high in November, those coins would have been worth $124 million.)

The Federal Reserve intends to reduce the support it provided to the economy during the pandemic and will raise interest rates this year as it struggles with a rapid rise in consumer inflation and wages.

To service its debt, El Salvador needs money. Its finances depend on international investors being willing to buy more national debt, which currently represents about 84% of its GDP (dangerous territory for a small, slow-growing economy).

The Bukele’s government are now attempting to negotiate a loan from the IMF.

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