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El Salvador is Ramping Up Bitcoin – Is It Worth the Risk?

admin by admin
July 1, 2022
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  • President Nayib Bukele announced via Twitter that El Salvador has re-purchased Bitcoin.
  • So far, El Salvador’s Bitcoin reserve is down, although Bukele was optimistic.
  • The country is still struggling with a number of economic and social problems, while the Bitcoin strategy is increasingly coming under criticism.

Once again, President Bukele announced via social media that his country has re-purchased Bitcoin. However, it seems that in the summer of 2022 you bake much smaller rolls than last year. Because it is a modest 80 BTC. What is certainly a handsome fortune for the average citizen is, in the dimensions in which state budgets are moving, but rather a drop in the bucket.

According to Bukele, they bought for an average price of $ 19,000, which means an investment of about $ 1.5 million. In total, the position that his country holds is significantly under water, because on paper there is a loss of over 55%. This is also very similar to pioneer MicroStrategy, because Michael Saylor’s company also raised large sums during the bull market in 2021.

For El Salvador, there is a very high risk in the state purchases, because the country’s finances are not in good shape. Due to the aggravation of the situation in Ukraine, inflation and rising energy prices, poorer countries have even less leeway.

Dangerous state of emergency extended

At the same time, the whole country is in a state of emergency, because gang crime is out of control. Organizations such as the dreaded “MS-13” control entire parts of the small country and do not shy away from extreme acts of violence.

To counter this situation, the government has decided to crack down hard. Human rights organizations complain that arbitrary arrests would occur and that the prisons are overcrowded with about 250%. There are also deaths to be lamented and an increasing militarization in order to be able to counter the extreme gang violence.

As a result, many economic, but also social issues are likely to be much more pressing for El Salvador than investments in Bitcoin. Recently, there has been a war between gangs and government troops.

IMF puts pressure on

Accordingly, Bukele shows himself to be unbending with his new acquisition. Because in addition to the domestic problems, the IMF has been insisting for quite some time that the Bitcoin strategy should be abandoned. El Salvador urgently needs money in the form of loans, but this is always subject to conditions.

Meanwhile, the Bitcoin projects are on hold. Neither the “Bitcoin City” nor the planned “Bitcoin Bonds” have been implemented so far. However, there is no fear of a state bankruptcy so far. One can only hope that the government’s speculation will work out, because unlike MicroStrategy or professional investors, Bukele gambles with the little money of a country. A failure would not only be a fatal loss of image for Bitcoin, but also for the citizens of El Salvador.

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