El Salvador buys 500 bitcoins as cryptocurrency market sell-off continues

El Salvador’s President Nayib Bukele gestures during his speech at the closing ceremony of the Latin Bitcoin conference (LaBitConf) in Mizata Beach, El Salvador, where he announced “Bitcoin City”, on November 20, 2021.

Marvin Recinos | AFP | Getty Images

El Salvador has just added another $15.5 million worth of bitcoin to its balance sheet as the world’s most popular cryptocurrency continues its liquidation.

In a tweet on MondayPresident Nayib Bukele revealed that the country bought the slump, adding another 500 bitcoins to government coffers.

It is El Salvador’s biggest coin purchase since it began adding the digital currency to its balance sheet in September 2021 — the same month it became the first country to adopt bitcoin as a legal tender, alongside the US dollar.

Bitcoin is down over 8% in the last 24 hours and is nearly 55% below its all-time high in November.

El Salvador bought bitcoin at an average price of $30,744, according to the president’s tweet.

The country’s total reserve is up to 2,301 bitcoins, or about $71.7 million at current prices, based on data tracked by Bloomberg.

This is the latest in a string of bearish buys over the past nine months in which President Bukele – who has tied his political fate to the success of the country’s bitcoin experiment – ​​has doubled down on bitcoin as the cryptocurrency market plummets.

The country’s decision to lean on bitcoin is not without its skeptics – a contingent that has been gaining traction in recent months.

For months, the International Monetary Fund mourned Bukele’s bitcoin experiment.

In January, the IMF pressured El Salvador to abandon bitcoin as legal tender.

IMF directors “emphasized that there are major risks associated with the use of bitcoin for financial stability, financial integrity and consumer protection, as well as the associated tax contingent liabilities.”

The report, which was published after bilateral talks with El Salvador, went on to “urge” authorities to narrow the scope of their bitcoin law, removing bitcoin’s status as legal money.

The IMF report went on to say that some directors expressed concern about the risks associated with issuing bitcoin-backed securities, referring to the president’s plan to raise $1 billion through a “Bitcoin Bond” in partnership with Blockstream, a digital asset infrastructure company. However, that bond offering was frozen in March due to “unfavorable market conditions”, according to Finance Minister Alejandro Zelaya.

Part of El Salvador’s national move to bitcoin has also involved the launch of a national virtual wallet called Chivo, which offers fee-free transactions and allows for quick payments across borders. For a country where 70% of citizens do not have access to traditional financial services, Chivo aims to provide a convenient access ramp for those who have never been part of the banking system.

IMF directors agreed that the Chivo e-wallet could facilitate digital means of payment, thus helping to “drive financial inclusion”, while emphasizing the need for “stringent regulation and oversight”. Many Salvadorans have reported cases of identity theft, in which hackers use their national identification number to open a Chivo e-wallet in order to claim the free $30 worth of bitcoin offered by the government as an incentive.

A report published in April by the US National Bureau of Economic Research also showed that only 20% of those who downloaded the wallet continued to use it after spending the $30 bonus. The survey was based on “nationally representative research”. involving 1,800 families.

El Salvador has been trying since early 2021 to secure a $1.3 billion IMF loan — an effort that appears to have gone sour with this bitcoin dispute.

The country will need to find some other support to sustain its finances. The IMF predicts that, with current policies, public debt will increase to 96% of GDP by 2026, putting the country on “an unsustainable path”.

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