On 6/5, El Salvador passed a bill that made Bitcoin legal tender in the nation effective 9/17. Since passing the bill, the country hosted a Bitcoin Week, which generated excitement from the crypto community in which he and political/industry leaders spoke about the logistics and benefits of legalizing Bitcoin as a currency. During Bitcoin week, El Salvador’s leadership unveiled its plans for ‘Bitcoin City’, which will be funded by issuing a $1 billion Bitcoin Bond. The city (and the Bitcoin mining inside of it) will be powered by geothermal power generated from a nearby Volcano.
Over the weekend, El Salvador’s President, Nayib Bukele took to Twitter, stating that “El Salvador bought the dip” and added that he trades cryptocurrency for his country through his phone. Although Bitcoin enthusiasts view this adoption as revolutionary, the investing community has taken a different view. Since the country officially announced that Bitcoin would become legal tender, its bonds have declined in value. As one example, the price of the country’s 7.65% bonds maturing in June 2035 has plummeted by 37.5%. Investors are wary of the idea of tying a country’s assets and currency to an extremely volatile asset, and that has caused the yield on the bond shown below to rise nearly 90% from under 8% to over 14% now.
The country’s currency has also lost substantial value in relation to the dollar. In order to swap the country’s currency (Salvadoran Colon) for one US Dollar, individuals now need more than double the number of they did versus before Bitcoin officially became a legal currency in the nation. Will this dissuade other countries from accepting cryptocurrencies?
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