El Salvador’s Bitcoin experiment isn’t working

By Scoop
June 28, 2022 · less than 3 min read

Bitcoin goes up, Bitcoin goes down – creditors still want their money.

The joke isn’t funny anymore

El Salvador’s decision to adopt Bitcoin as legal tender was met with a wide range of criticism and doubt. Now, nine months on…yeah. They were right.

That’s not to say it’s all Bitcoin’s fault. The country has some pretty deep-seated financial problems of its own, but the hardcore all-in approach to Bitcoin adoption is playing a big role in a lot of it. With the latest Bitcoin crash racking up a paper loss of $50 million, investors are spooked and repaying El Salvador’s other outstanding debts just got a lot more expensive.

Pushing water uphill

Buying Bitcoin as an individual is quite different to buying it as a sovereign state. You can buy some Bitcoin tomorrow and maybe it’ll go up, and maybe it’ll go down – it’s not the end of the world (as long as you’ve invested safely). When it comes to sovereign debt though, it’s a bit more problematic. Plough your money into Bitcoin and rack enough losses and your financial outlook will deteriorate. Investors won’t want your debt and it’ll become harder to keep your finances on track.

If we were still in the low-interest environment of yesterday, maybe things would be different. But as the global economy shudders to a standstill, the ‘race to safety’ is on and El Salvador bonds don’t fit that category. Nobody is lending to the country unless it comes with eye-gauging interest, meaning that it’s $7.7 billion of outstanding bonds are a lot harder to pay off today.

The national Bitcoin experiment isn’t going well, and the people are caught in the middle.

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