Moody’s sounds the alarm over El Salvador’s bitcoin policy

According to Moody's analyst Jaime Reusche, government bitcoin trading is "quite risky, particularly for a government that has struggled with liquidity pressures in the past". President Bukele, who buys Bitcoin for the country with public money using his phone, has not shared key information relevant to the country's bitcoin holdings. But, according to his own tweets, he has bought at least 1,391 bitcoins to date.

These purchases, according to Bloomberg's calculations earlier this week, lost money in El Salvador. The country's total bitcoin holdings are reportedly costing around $ 71 million at an average price of $ 51,056 per bitcoin.

Right now, El Salvador's $ 800 million bond also has a yield of over 35%, suggesting that financial markets have very little confidence that the Salvadoran government will ever be able to pay off this debt.

This places El Salvador in a difficult position when it comes to accessing traditional debt markets and the foreign bond market. "I don't know who will buy these bonds, but it definitely won't be us," Kevin Daly, a fund manager at Aberdeen Standard Investments, told the Financial Times in November 2021.

Reusche suggests that El Salvador's total Bitcoin holdings, for now, do not pose a major threat to the government's financial obligations, however, if Bukele buys more Bitcoin, that risk will increase. In July, Moody's also downgraded El Salvador to a CAA credit rating. Bonds with a Caa rating are “judged to be of poor reputation and subject to very high credit risk”.

Last week, El Salvador announced that the government would send about 20 bills to Congress to kickstart its bitcoin bond regime. According to the finance minister, Alejandro Zelaya, these bonds "would provide legal structure and legal certainty to all those who buy the bitcoin bond". The government hopes that $ 1 billion in bitcoin-backed bonds, which will be issued in 2022, will be partially converted into Bitcoin and partially used to fund the country's bitcoin mining operations.

by Alessandro Crea

Tuesday 18 January 2022 16:00


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