The current dip in the cryptocurrency market could have dire consequences for El Salvador. Last year, the Central American country adopted Bitcoin as legal currency. Now El Salvador risks defaulting on its national debt within the next several years if the cryptocurrency market doesn’t recover.
After a civil war in the 1980s, the country struggled financially. El Salvador’s currency was the colon until September 2001, when the country transitioned to U.S. dollars to gain financial stability.
President of El Salvador Nayib Bukele is a cryptocurrency fanatic and was even scheduled to speak at the Miami Bitcoin Conference but had to cancel due to worsening gang violence in his country.
El Salvador goes all in
On May 9th, Bukele tweeted, “El Salvador just bought the dip,” referring to a purchase of 500 BTC at roughly thirty thousand USD each. According to El Salvador.com, this brings the country’s Bitcoin loss up to $38 million.
While Bitcoin was adopted as a legal currency, few citizens of El Salvador use it, and the constant flux in value makes it an unwise daily currency. Additionally, the government’s digital wallet app is known to be unreliable.
The International Monetary Fund is offering to finance El Salvador to aid in repaying an $800 million government bond. However, the country has more debts to pay on top of that.
“Efforts to improve financial inclusion are welcome, but Bitcoin use carries significant risks and Bitcoin should not be used as an official currency with legal tender status,” the IMF warned El Salvador in a consolation document.
Bitcoin’s wild ride
While Bitcoin may make for a poor day-to-day currency, it continues to be popular among crypto enthusiasts. Metaverse pioneer, Niantic, is partnering with Fold to develop an AR Bitcoin Metaverse experience. Despite the dip in the market, Google Cloud is creating a Web 3 team to profit off of cryptocurrency. Additionally, nearly a fifth of UK citizens now own cryptocurrency.