El Salvador became the first country to recognize Bitcoin as its official currency. The country has been buying it since September, and planned to build a hub for volcanic energy mining and issue the first bitcoin-linked sovereign bond.
However, now, due to the collapse of cryptocurrencies over the past two weeks, the value of El Salvador’s state assets has fallen by a third. In addition, the country has other problems. El Salvador’s global spending on loans is growing, and soon the country must repay a large debt. However, the fall of cryptocurrency has closed several opportunities to get out of the crisis, including thanks to Bitcoin bonds, which are now postponed.
“The government’s financial problems are not because of bitcoin, but they have gotten worse because of bitcoin. Bitcoin ceased to be a solution and has become part of the problem,” said Ricardo Castaneda, senior economist and country coordinator for El Salvador at think tank Central American Institute for Fiscal Studies.
Bitcoin has fallen 45% since El Salvador adopted it as its official currency, and 26% from its maximum in May as cryptocurrency assets were used in a risky investment environment.