El Salvador’s historic adoption of Bitcoin (BTC) could have negative consequences on the country’s sovereign credit outlook, according to Moody’s Investors Service.
Moody’s analyst, Jaime Reusche told Bloomberg this week that El Salvador’s Bitcoin gambit “certainly adds to the portfolio of risks” for a country that has struggled with liquidity problems in the past.
Under the leadership of President Nayib Bukele, El Salvador recognized Bitcoin as legal tender and issued a state crypto wallet to facilitate payments, transfers, and holdings. In the path, El Salvador has amassed a treasure chest of 1,391 BTC, with President Bukele famously “buying the dip” on several occasions by using the volatility of Bitcoin to increase his country’s holdings.
Buying the dip
150 new coins added.#BitcoinDay #BTC
– Nayib Bukele (@nayibbukele) September 7, 2021
buying the fall
Added 150 new coins.
However, Reusche warned that accumulating more BTC would raise El Salvador’s default risk. “If it goes up a lot, that represents an even greater risk for the payment capacity and the fiscal profile of the issuer,” he said.
PREDICTION: The El Salvador bitcoin bond will be ridiculously oversubscribed pic.twitter.com/2Kj0urm0SN
— Pomp (@APompliano) November 23, 2021
PREDICTION: El Salvador’s bitcoin bond will be ridiculously oversubscribed
In addition to downgrading El Salvador’s credit rating, Moody’s has warned that the country’s so-called Bitcoin volcano bond could limit its access to foreign bond markets. Proceeds from the volcano bond, which is expected to raise approximately $1 billion, will be used to fund El Salvador’s Bitcoin City project.
Attacks on El Salvador’s Bitcoin maneuver by legacy financial institutions are nothing new. In November 2021, the Washington-based International Monetary Fund warned El Salvador against using Bitcoin as legal tender. Meanwhile, the World Bank has rejected the country’s request for assistance in implementing its Bitcoin Law over alleged environmental and transparency concerns.
But nevertheless, El Salvador has remained steadfast in adopting Bitcoin and creating an attractive environment for crypto investors and entrepreneurs.. Last week, Finance Minister Alejandro Zelaya said that the country’s Bitcoin Law has already attracted foreign investment.
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