After bitcoin, bankruptcy: El Salvador was the first country to adopt it and is now experiencing the consequences of its great fall

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El Salvador was the first country in the world to adopt bitcoin as a legal tender currency. A few days ago the Central African Republic did the same, although the decision points more to a government decision to please Russia, its great support, rather than a bet on cryptocurrency.

But bitcoin has been losing value for months (just like other big cryptocurrencies) by leaps and boundsmaking it clear that they are highly dependent on political decisions, and that is a serious blow to the economy of El Salvador.

Now, with the latest crash recorded this week, the drop in the value of the cryptocurrency accumulates 40% since it was launched as legal tender. And this has led to another problem: the fall in the prices of his sovereign debt.

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El Salvador’s debt rating has gone from level B- to CCC in a scenario of non-payment of its debts, according to the financial corporation Fitch Ratings. This could lead El Salvador to “go into default”, which means losing access to financing in the markets, something that already happened with Greece in 2012, when its great crisis, or with Lehman Brothers in 2008 in the private sector. .

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The volatility of bitcoin since its inception and the lack of regulation were a reason for protest in El Salvador by people opposed to the adoption of these currencies. Another concern of the citizens was that it could facilitate money laundering.

A few days ago, the Central American country announced that “El Salvador just bought the fall!” at an “average price of $30,744 for 500 coins, as Nayib Bukele, its president, wrote on Twitter. September 6, 2021 was when the government announced that El Salvador had bought 200 BTC and that “our brokers are going to buy a lot more.”

It should be remembered that the World Bank did not want to support the country in the deployment of Bitcoin and this is also negative for the country’s economy. The IMF or International Monetary Fund recommended reversing the decision to nationalize bitcoin.

Adoption by the citizenry

According to a study by the National Bureau of Economic Research, only a fifth of Salvadorans who downloaded the Chivo Wallet app was used after spending the $30 that the government gave to those who downloaded the app.

Nayib Bukele stated that this measure was to offer more business opportunities by reducing costs and attracting tourists. He offered so-called blockchain-based “volcano bonds” with which to finance himself to buy more cryptocurrencies and created the ‘Bitcoin City’, a coastal city without income taxes or contracts with its own geothermal power plant to mine bitcoins.

Now, after Ukraine, plunged into a war since the invasion of Russia, it is the only country in the world that surpasses El Salvador in the sinking of their bonds and this translates into high-risk debt.

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