El Salvador’s Reserves Tumble as Bitcoin Extends Losses

El Salvador has amassed an estimated 2,301 bitcoins since announcing it would recognize the world’s largest cryptocurrency as legal tender a year ago. 

El Salvador President Nayib Bukele has made it a habit to “buy the dip” in recent months, often taking to Twitter to brag about locking in lower prices. At the time of Bukele’s last Twitter update, the country’s bitcoin reserves totalled about $71.4 million. 

But recent market conditions have pushed bitcoin’s price even lower, driving El Salvador’s holdings down to around $52 million. 

The sell-off comes as El Salvador continues to delay the issue of its highly anticipated “volcano bonds,” which were originally slated to launch in March 2022. The country opted to postpone the planned $1 billion offering, which is supposed to fund El Salvador’s “Bitcoin City,” following turbulence in the markets, Finance Minister Alejandro Zelaya said. 

The bonds are largely seen as one of the Central American nation’s last hopes of meeting its financing needs. The International Monetary Fund (IMF) has expressed concern about the sustainability of El Salvador’s bitcoin experiment and is unlikely to approve loan payments. The World Bank also refused to help the country with its bitcoin adoption plans when they were first announced in June 2021. 

El Salvador has an $800 million bond maturing in January 2023. In July 2021, ratings agency Moody’s downgraded the country’s debt rating to CAA1, meaning it is considered at risk of defaulting on loans. 

Public perception is deteriorating, too, thanks to various tweets from Bukele making light of the situation. Bukele trades bitcoin on behalf of El Salvador on his cellphone, he admitted in another tweet.

“That kind of behavior doesn’t help, it really shows that he either doesn’t understand or he doesn’t care,” Nathalie Marshik, head of emerging markets sovereign research at Stifel Financial Corp, told Blockworks at the time of the tweets. “You have massive financing needs and you use your taxpayer money to day-trade bitcoin? What is the strategy in that?”