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Bitcoin-Trading President Likely Lost Money for El Salvador

·4 min read
Bitcoin-Trading President Likely Lost Money for El Salvador

(Bloomberg) -- El Salvador’s President Nayib Bukele is probably the only head of state in the world who uses public funds to trade Bitcoin with his phone.

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So far, it appears he’s lost money. That’s because the process is shrouded in secrecy, though the country has bought at least 1,391 Bitcoins, based on what the 40-year-old Bukele has said on Twitter.

The purchase Bukele says he’s made would have cost the Central American country about $71 million based on an average acquisition price of $51,056 per token using the date and time of his tweets, as calculated by Bloomberg. Assuming the government has held the digital coins, they’re now worth about $61 million at Wednesday’s price, a 14% loss.

El Salvador began buying Bitcoin in September after Bukele pushed through a plan to make the nation the first to consider it legal tender. Bitcoin was trading around $50,000 then, and the nation continued to buy as the token approached a record high of almost $69,000 in early November. It has seen since lost as much as 40% of its value.

Even with the slump in Bitcoin, any likely trading losses are dwarfed by the plunge in the nation’s bonds, which has raised El Salvador’s financing costs. The country’s overseas dollar bonds posted the world’s worst performance in 2021 as investors were spooked by Bukele’s unorthodox economic management and the nation’s experiment with Bitcoin. The government didn’t respond to requests for comment.

The yield on the nation’s $800 million of dollar bonds due January 2023 rose to 34% on Tuesday, from less than 9% a year ago. An extended fund facility with the International Monetary Fund has not come to fruition due to the multilateral lender’s concerns over Bitcoin.

Buying the Dips

Bukele has become a celebrity in the Bitcoin community, buying on price dips and promising to build a tax-free Bitcoin City on the country’s coast. His government said it will fast-track citizenship for investors who buy $100,000 or more of a proposed blockchain bond expected to be issued this year on Blockstream Corp.’s Liquid Network.

He has even engaged in Twitter wars with Bitcoin critics, calling Johns Hopkins economist Steve Hanke an “id10t” after Hanke said Bukele’s plan to mine Bitcoin with geothermal energy from an inactive volcano was “antics from a narcissistic president who is full of hot air.”

Finance Minister Alejandro Zelaya said last week that the government had converted some of the Bitcoins purchased back into dollars, but didn’t elaborate. He said a team of government officials decides when to buy dips.

Bukele’s administration plans to build a public animal hospital with any trading profits, he said.

Read More: Bitcoin Launch Sparks Wave of Crypto Speculation in El Salvador

The government’s Bitcoin address is a secret. The government says it has a $150 million fund at state-run bank Bandesal to back Bitcoin transactions, but doesn’t publish information about it.

“Opacity surrounds everything related to it,” said Ricardo Castaneda, an El Salvador-based economist for the Central America Fiscal Studies Institute. “There’s no official information about the amount of Bitcoin the government has purchased, the price they paid or how much is in reserve,” he said.

Funding Gap

El Salvador adopted the cryptocurrency as legal tender alongside the dollar in September, and millions of people have downloaded the country’s digital wallet app, called Chivo.

Nathalie Marshik, head of emerging-market sovereign research at Stifel Nicolaus & Co. in New York estimates that the government will have a funding gap of $1 billion this year.

Read More: Bitcoin Nation Loved by Crypto Faithful, But Not by Bondholders

“The government has fairly large financing needs. What money is it using to day-trade BTC with?” she said. “I could understand why the Salvadoran taxpayer would be peeved about this, especially given the recent Bitcoin nosedive. It is hard to justify a government trading such a risky asset with taxpayers money in such opaque circumstances.”

(Updates with latest Bitcoin values in 3rd paragraph)

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