El Salvador’s historic embrace of Bitcoin (BTC) might have detrimental penalties on the nation’s sovereign credit outlook, in response to Moody’s Investors Service.
Moody’s analyst Jaime Reusche advised Bloomberg this week that El Salvador’s Bitcoin gambit “certainly adds to the risk portfolio” of a rustic that has struggled with liquidity points prior to now.
Under the management of President Nayib Bukele, El Salvador has acknowledged Bitcoin as authorized tender and issued a state-run crypto pockets to facilitate funds, transfers and possession. Along the way in which, El Salvador has amassed a treasure chest of 1,391 BTC, with President Bukele famously “buying the dip” on a number of events through the use of Bitcoin’s volatility so as to add to his nation’s holdings.
Buying the dip
— Nayib Bukele (@nayibbukele) September 7, 2021
However, Reusche warned that accumulating extra BTC would elevate El Salvador’s threat of default. “If it gets much higher, then that represents an even greater risk to repayment capacity and the fiscal profile of the issuer,” he mentioned.
PREDICTION: The El Salvador bitcoin bond will likely be ridiculously oversubscribed pic.twitter.com/2Kj0urm0SN
— Pomp (@APompliano) November 23, 2021
In addition to downgrading El Salvador’s credit score, Moody’s has warned that the nation’s so-called Bitcoin volcano bond might restrict its entry to international bond markets. Proceeds of the volcano bond, which is predicted to lift roughly $1 billion, will likely be used to fund El Salvador’s Bitcoin City venture.
Related: Tonga to repeat El Salvador’s invoice making Bitcoin authorized tender, says former MP
Attacks on El Salvador’s Bitcoin gambit by legacy monetary establishments are nothing new. In November 2021, the Washington-based International Monetary Fund warned El Salvador in opposition to utilizing Bitcoin as authorized tender. Meanwhile, the World Bank has rejected the nation’s request for help in implementing its Bitcoin Law over alleged environmental and transparency considerations.
Nevertheless, El Salvador has remained steadfast in embracing Bitcoin and in creating a sexy setting for crypto buyers and entrepreneurs. Last week, finance minister Alejandro Zelaya mentioned the nation’s Bitcoin Law has already attracted international funding.