The President of El Salvador, Nayib Bukele, has announced that his government plans to buy one Bitcoin every day starting Thursday. And while Bukele didn’t say when the purchases would stop, it’s likely to add to the financial disaster his country’s cryptocurrency experiment has already led to.
The current price of one Bitcoin is $16,672, down more than 70% from a year ago. In November 2021, the cryptocurrency traded at an all-time high of over $68,000, when El Salvador was buying a large amount of Bitcoin.
According to the latest Bloomberg’s calculations, President Bukele has already lost tens of millions of dollars to El Salvador. The country has not publicly confirmed how many Bitcoins have been purchased, but based on Bukele’s tweets, it can be determined that he has purchased 2,381 Bitcoins since the start of his experiment. According to Bloomberg, the value of all Bitcoin in the country was $105 million, while the current value is approximately $39.4 million. Bukele would be wiser to just hold US dollars in cash, even with annual inflation of nearly 8%.
Despite the announcement of Bitcoin as the official currency in El Salvador at the end of 2021, few people actually use the cryptocurrency to make purchases in the country. And one of the common reasons given for declaring it a currency (sending remittances back to the country from abroad) has also failed. According to Reuters, between September 2021 and June 2022, remittances worth about $6.4 billion were sent to El Salvador, but less than 2% of them were in cryptocurrency.
The Bitcoin experiment has also led to multiple downgrades of El Salvador’s credit rating, and it is currently at SS due to the possibility of default on bonds due in 2023, according to the data of CoinDesk.
Recent developments in the crypto industry have somewhat dampened the enthusiasm of ordinary people to buy cryptocurrency. The founders of FTX, for example, took real money from users and gave it to their own hedge fund called Alameda Research, while inventing at least two cryptocurrencies to hold it in their accounts as “assets”. Those assets were junk, and when competitor Binance’s CEO Changpeng Zhao tried to cash out $580 million of those junk assets last week, it resulted in the entire FTX house of cards collapse.