Hot topics | Coronavirus pandemic

Not all Salvadorans 'Feel the Bit' averts Bukele's bitcoin hype

Not all Salvadorans 'Feel the Bit' averts Bukele's bitcoin hype

SAN SALVADOR, Nov 25 (Reuters) - (This Nov. 25 story refiles to correct error in paragraph 15 to BlueBay, not Blue Bat) - (This Nov. 25 story refiles to correct error in paragraph 15 to BlueBay, not BlueBay, not BlueBay) - (Not BlueBay, not BlueBay, not BlueBay, but)

To the cheers of fans, El Salvador's President Nayib Bukele took the stage last weekend at the conclusion of "Bitcoin Week" to the end of the event, and his Central American country has become the first to adopt crypto currency as legal tender, along with the United States dollar.

Bukele, 40, wearing his backwards baseball cap, described himself as a "savior" as he revealed intentions to construct "Bitcoin City" at the base of the Conchagua volcano overlooking the Pacific.

The city would offer a tax-free place to investors, which are funded by bitcoin-backed investments and fueled by geothermal energy. "Invest here and earn all the money you want," he joked to the euphoric crowd.

Supporters have hailed Bukele's intentions, including a bitcoin legal tender in September, saying they will bring jobs, financial inclusion, and foreign investment to one of the Western Hemisphere's poorest nations.

Before Bukele, who dubbed himself "CEO of El Salvador" on Twitter, "Feel the Bit" read the huge screen before he came on stage.

However, some in El Salvador and beyond expressed disdain for the glittering event in a nation plagued by inequality, violence, and poor public services.

"This video makes me sick, angry, and sad at the same time," said Marce, twitter user @lamismadeayer.

According to credit rating agency Fitch, the government claims that issuance of $1 billion in Volcano bonds in collaboration with Blockstream - a digital assets infrastructure firm - would provide development funds. El Salvador currently faces a $500 million budget gap for next year.

But the bitcoin bond isn't meant to help cover that disparity.

According to the plan, the rest of the bond money will go to infrastructure, including for constructing Bitcoin City, with the remaining being bought and locked up for five years. After the lock up, the bitcoin may be sold, generating a capital return that will be split 50-50 between the government and investors, only after the initial $500 million are recouped, according to the plan.

The 10-year bitcoin bond has a 6.5% discount, payable yearly, but another Salvadoran bond that matures in 2032 is presently acquiring approximately 13.9%.

The spread of Salvadoran yields to safe-haven U.S. Treasuries has steadily increased since late April, adding an additional 79 basis points and above 1,200 bps, it's the largest ever. The spread of Salvadoran yields to safe-haven U.S. Treasuries has widened significantly since late April, and this week it added an extra 79 basis points and is above 1,200 bps, its largest ever.

Investors sold El Salvador's bonds in May when the Bukele-controlled Congress sacked El Salvador's attorney general and five Supreme Court judges, who were replaced with loyalists, critics say.

According to Refinitiv data, the country is effectively excluded from market borrowing since the 2025 bond yields more than 18%.

Graham Stock, senior sovereign analyst at BlueBay Asset Management, stated that government funding through bitcoin could discourage El Salvador from adopting sustainable spending ideas, adding that the country would most likely need International Monetary Fund assistance.

"Building the economy around crypto mining and attracting crypto companies is an untested approach to put it mildly," he added, adding Bukele did not appear to have plans to increase growth and tax revenues.

IMF TALKS STALLED

Talks with the IMF on a $1 billion loan have stalled amid worries about lack of transparency and the price volatility of cryptocurrency, as well as fears of democratic backsliding when Bukele consolidates power.

Many in the cryptocurrency community, on the other hand, are outraged, saying that the bond will enhance robust retail demand.

"Bitcoin bonds are a game-changing tool in fixed income markets," Moritz Wietersheim, founder of Specter Solutions, a bitcoin security and product firm, said.

Despite the fact that bitcoin has fallen approximately 16% from its record high of $68,990.90 this month, it has grown over 90% this year.

International crypto evangelists tested the digital currency experiment for the first time, "Bitcoin Week" commemorated the first time the digital currency experiment was stress-tested by international crypto evangelists.

As vendors wore "Jesus Loves Bitcoin" shirts, panel discussions grouped crypto currency executives and Salvadoran ministers, and apologies for having a 'petri dish', as many attendees described El Salvador's experiment.

Several attendees were concerned about the government's Chivo wallet, in which Salvadorans may send and receive bitcoin, highlighting tensions over a state system for a currency created as an alternative to government financial systems.

Chivo allows users to make transactions to other Chivo users fee-free, but registration requires Salvadorans to enter their ID numbers and other personal information while transactions are kept on a register. Pre-loaded with $30 for users and funded by a $150 million fund, Chivo allows users to make transactions to other Chivo users cost-free.

Chivo was referred to by some attendees as a gateway to independent bitcoin wallets, such as Muun or BlueWallet, that provide privacy.

"When I make a payment, I write use Muun, don't employ Chivo, in the notes section, according to Wietersheim, using the hashtag #FixChivo on Twitter.

Chivo has been criticized for thousands of fraud cases and money escaping from wallets since its release.

These technical difficulties were common in terms of speed of implementation - less than four months after Bukele announced it at a June conference. Several programmers claim they would be necessary for the speed of implementation, which was normal.

Bukele has blamed the situation for high demand, blaming the president's office's president and Chivo for not commenting.

Our Standards: The Ultimate Standards: The Minimum Standards: The Minimum Standards

You may also like: