(Bloomberg) — El Salvador’s bet on bitcoin has already cost the nation’s government enough to cover its next interest payment to bondholders, underscoring the big risks posed by its cryptocurrency experiment. .
The pullback that has sent bitcoin down 40% since the end of March has deepened the cumulative losses on the government of President Nayib Bukele’s holdings to around $40 million, according to a Bloomberg estimate. That’s slightly more than the next coupon payment on his foreign debt, $38.25 million due June 15 in notes due 2035.
Bukele’s government has spent around $105 million buying bitcoin since becoming the first country in the world to convert the token into legal tender in September, according to his Twitter announcements. Since the first purchase, the cryptocurrency has fallen 45%, reducing the value of the country’s 2,301 bitcoins to about $66 million.
That’s another blow for Bukele, a devout crypto believer who has been trying to sell a Bitcoin-backed bond for more than five months. Investors, however, have been lukewarm about El Salvador’s bonds, concerned not only about the government’s ability to keep up with its debt, but also about its willingness to do so.
Bukele’s office declined a request for comment from Bloomberg News. The government does not publish data about its bitcoin holdings.
The country’s foreign debt prices have fallen about 18% this year, leaving 10-year and 30-year bonds trading at around 40 cents on the dollar in distressed territory. The next capital payment is in January for US$800 million. The 22% discount to the price at which the notes are trading suggests some hesitation on the part of investors as to whether the obligation will be met.
El Salvador owes bondholders US$382 million in interest this year, with July being the heaviest month for payments as US$183 million is due. In April, the nation had $3.4 billion in reserves, according to the central bank, and the government plans to raise $1 billion from the bitcoin-backed bond, though it is unclear at this point whether the transaction will go through.
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The country was also in talks with the International Monetary Fund for an expanded funding facility, but negotiations stalled after Bukele adopted cryptocurrency as legal tender. Since then, spreads on the nation’s credit default swaps, a type of insurance against late payments, have risen more than 20 percentage points, implying an 87% chance of default in the next five years.
El Salvador’s Bitcoin Losses Are as Big as Its Next Bond Payment
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