El Salvador’s finance minister, Alejandro Zelaya, downplayed concerns that Bitcoin’s sharp drop in value on Monday had a negative impact on his country’s economy. He stated that El Salvador, which famously incorporated Bitcoin to its public treasury, was unaffected by the current meltdown.
Speaking to reporters, Zelaya said economists who believed El Salvador was in danger were speaking from the point of ignorance. He added that such analyses were superficial, and also said “an alleged loss of $40 million has not occurred because we have not sold the coins.”
“When they tell me that the fiscal risk for El Salvador because of Bitcoin is really high, the only thing I can do is smile. The fiscal risk is extremely minimal. I have said it repeatedly: an alleged loss of $40 million has not occurred because we have not sold the coins. Forty million dollars does not even represent 0.5% of our national general budget.”
El Salvador’s loss is estimated to be around 51%
The Nayib Bukele tracker, which tracks all of El Salvador’s Bitcoin purchases, estimates its reserves have lost 51% of their value. The estimate is based on Bitcoin’s price, which is hovering around $22,000 and equals about $51.6 million worth of loss.
As a result, the tracker named after the country’s Bitcoin-obsessed president keeps track of every government purchase. The cost basis, total reserves, and average cost basis of the assets are all taken into account in the graph. As a result, it’s estimated that Bukele spent $105.6 million on 2,301 Bitcoins at an average cost of $45,908 per BTC over the course of multiple acquisitions.
Meanwhile, El Salvador became the first government to recognize Bitcoin as legal cash last year. The country’s acceptance of the digital asset has sparked outrage both inside and outside the country. The IMF has been outspoken in its support for the Caribbean nation, advising it to liquidate its Bitcoin holdings and forsake the cryptocurrency as legal tender.
El Salvador’s debt rating was recently reduced from Caa1 to Caa3, indicating a negative outlook, by rating agency Moody’s. However, despite all of the criticism, the government has remained obstinate, with Zelaya passionately denying the views of these international agencies to reporters. Since then, the government has announced further Bitcoin purchases, hired developers for its Chivo wallet, and issued BTC-based “volcano” bonds.
El Salvador is unaffected by the Bitcoin crash
El Salvador’s government’s attitude demonstrates that the country is undeterred by the recent crypto meltdown. The crypto market, which has been dropping since the turn of the year, has seen significant losses this week. Bitcoin’s price has dropped below $24,000, its lowest level since 2020, while the overall cryptocurrency market cap has dropped below $1 trillion.
However, given to global macro challenges, a swift recovery for the market is quite unlikely. The Federal Reserve is expected to raise interest rates again today in response to growing inflation and the possibility of a recession. This, combined with Russia’s conflict in Ukraine, China’s blockade, and supply chain issues, paints a bleak picture for both traditional and crypto markets.
Nayib Bukele, El Salvador’s president, showed a golden scaled model of the proposed Bitcoin metropolis last month. The plan is to build a geothermal city in the shadow of a volcano that also serves as a tax shelter. However, there are little details regarding how the Caribbean nation plans to carry out its goal in the face of falling Bitcoin prices.
Meanwhile, the majority of Bitcoin’s greatest public investors have seen their paper BTC holdings plummet. MicroStrategy, led by Michael Saylor, owns 129,218 Bitcoins, which were purchased for more than $4 billion but are now worth $2.9 billion, a loss of 26%. Tesla, which said it had roughly 42,000 BTC on hand, has likewise lost all of its gains and is now in the red.
As a result, numerous companies in the industry have begun to take precautions in preparation for the impending crypto winter. To stay profitable, cryptocurrency exchanges like Coinbase, Crypto.com, and Gemini have announced job cutbacks. Despite the weak market, Binance claims it would increase its recruiting and acquisitions.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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