El Salvador plans to buy more Bitcoin despite losing millions
Nayib Bukele, the president of El Salvador, announced late Wednesday that his government plans to buy one Bitcoin every day starting Thursday. And while Bukele hasn’t said when the purchases will stop, it will likely turn out to be a shockingly stupid decision, based on the huge loss he’s already taken by buying bitcoin at an all-time high last year.
“We’re buying a #Bitcoin every day starting tomorrow,” Bukele tweeted Wednesday around 11.30pm local time in El Salvador.
The current price of one Bitcoin is about $16,540, down 1.5% from a day earlier and down 73% from a year ago. Bitcoin traded at an all-time high of over $68,000 in November 2021 when El Salvador bought large amounts of Bitcoin.
President Bukele has already lost El Salvador millions of dollars, according to the latest calculations of Bloomberg News. El Salvador has not publicly confirmed how many bitcoin purchases the country has made, but based on Bukele’s tweets, we can determine that he has purchased 2,381 Bitcoins since the start of the experiment. The price for all the country’s Bitcoin holdings has been $105 million to buy, according to Bloomberg, while the current value is about $39.4 million. Bukele would have been smarter just to hold US dollars as cash, even with annual inflation of almost 8%.
Despite Bitcoin being declared an official currency in El Salvador at the end of 2021, few actually use crypto for purchases in the country. And one of the common reasons cited for declaring it a currency, and sending remittances back to the country from abroad, has also been a bust. About $6.4 billion was sent in remittances to El Salvador from September 2021 to June 2022, but less than 2% of that was in cryptocurrency, according to Reuters.
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The Bitcoin experiment has also led to El Salvador’s credit rating being repeatedly downgraded, with the country’s rating currently at CC, due to the likelihood that it will default on bond obligations due in 2023, according to CoinDesk.
Bitcoin, like all cryptocurrencies, is a difficult system for transferring money from the poor to those who are already wealthy and influential. Most people lose money trading bitcoin, like one recent study made clear. But that doesn’t stop many ordinary people from trying. And those same regular people are getting hurt financially, as crypto exchanges are declaring bankruptcy left and right.
Recent implosions in the crypto industry have put a damper on enthusiasm as giant scams like FTX have shown. The people who started FTX took real money from users and gambled it away at a hedge fund called Alameda Research, while inventing at least two cryptocurrencies to keep on their books as “assets”. Those assets were junk, and when rival CEO Changpeng Zhao of Binance tried to cash out $580 million of that junk last week, the entire house of cards on FTX came crashing down.
Will any of this stop people from continuing to buy Bitcoin? Certainly not, as we see arguably the biggest Bitcoin promoter in the world double down on its bad investment. Bukele is like the gambler who thinks he is only one hand away from the big score. But the house always wins, and the citizens of El Salvador will suffer as he gambles away the country’s future.
