El Salvador’s Bitcoin fantasy is shattered following a bond market catastrophe.
The government’s approach has been jeopardized due to the decline in the price of bitcoin.
El Salvador is the first country to recognize Bitcoin as legal currency, according to the controversial Nayib Bukele’s government.
Financial institutions and experts warned of the dangers this posed from the start, because it was an asset with no government backing, and even more so because its price fluctuated wildly.
Everything was wonderful when the cryptocurrency was quoting high, but now that the price has dropped, the Central American country faces a new scenario.
El Salvador’s Bitcoin bet is stumbling
According to an article by Diario Financiero (via Tarreo), the price of bonds issued by the Salvadoran government has dropped by about 50% in their 10-year perspective in the 12 months since Bitcoin was legalized in the country.
Sovereign bonds are government-issued bonds whose yield is linked to the market’s assessment of each country’s economic risk.
In the case of El Salvador, the bitcoin bet generated uncertainty in investments and led to the country being labeled as a dangerous economy, given the volatile nature of cryptocurrencies.
When it comes to Bitcoin, investors are wary about the Salvadoran economy.
Various publications throughout the year and followed the collapse in Bitcoin’s price and have cautioned about the consequences of the Salvadoran government’s gamble.
Another example is the suspension, for the second time, of the issue of Bitcoin bonds, a global first that would mimic what is done with sovereign bonds but with cryptocurrency.
However, this has not occurred because the two initiatives have given up in the face of a drop in Bitcoin’s price, which has diminished investor enthusiasm in quick profits.
Finally, the lack of interest in the use of Bitcoin by the Salvadoran society is highlighted.
The local platform Chivo Wallet is used but only 40% of people who downloaded it at the start continue to use it.