El Salvador’s President Nayib Bukele is probably the only head of the country in the world who uses public funds to trade Bitcoin with his phone.
El Salvador began purchasing Bitcoin in September after Bukele pushed through a plan to make the country the first in the world to consider cryptocurrency legal tender. Bitcoin was trading around $47,000 then, and the nation continued to buy as the cryptocurrency approached a record high of almost $69,000 in early November. It has since lost more than 40% of its value.
Yesterday (Jan 21, 2022), El Salvador bought another 410 bitcoin for $15 million the country’s President Bukele said on Twitter. Bukele has been a consistent “dip buyer” over the past couple of months in a sign of confidence in the cryptocurrency’s long-term prospects.
However, it is difficult to verify any of the transactions mentioned by Bukele on the public blockchain, since a buyer of a block of BTC that size would almost certainly have to buy it in smaller chunks to avoid slippage. Furthermore, Bukele has not shared with the public the wallet address. Therefore, no third party could confirm the execution of any of these Bitcoin trades.
So far, the purchases Bukele says he’s made would have cost the Central American country about $85.6 million based on an average acquisition price of $47,828 per Bitcoin using the date and time of his tweets, as calculated by WallStreetPro. Assuming Bukele has held the digital coins, they’re now worth about $62.9 million at Saturday, Jan 21, 2022, price of $34,933, a 26.47% loss. (Please see the table below)
Even with the slump in Bitcoin, any likely trading losses are dwarfed by the plunge in the nation’s bonds, which has raised El Salvador’s financing costs astronomically. The country’s overseas dollar bonds posted the world’s worst performance in 2021 as investors were “spooked” by Bukele’s unorthodox economic management. Bukele’s experimentation with Bitcoin did not help in this process.
The yield on the nation’s $800 million of dollar bonds due Jan 2023 rose to 34% on Tuesday, from less than 9% a year ago. An extended fund facility with the International Monetary Fund has not come to fruition due to the multilateral lender’s concerns over Bitcoin.
In other words, El Salvador has big problems securing financing from foreign institutions in the near future.