Speculating with tax money: Bitcoin fan Bukele gambles away millions

Nayib Bukele's bitcoin deals are not going well at all at the moment.

Speculating with tax money: Bitcoin fan Bukele gambles away millions

Nayib Bukele's bitcoin deals are not going well at all at the moment. El Salvador's president has sunk more than $50 million with his deals so far. But he remains loyal to the cryptocurrency.

Putting tax dollars into highly speculative cryptocurrencies is not necessarily a good idea. This is currently being demonstrated impressively by Nayib Bukele, President of El Salvador and avowed Bitcoin fan.

Last year, Bukele ensured that Bitcoin became legal tender in the Central American country. According to his own statements, he has bought a total of 2,301 bitcoins since September and spent more than $100 million on them. There are no official figures on this, the head of state only announces the purchases via Twitter. If you believe Bukele, he has currently sunk a lot of tax money with the purchases. After the cryptocurrency crash, the portfolio lost more than half and is currently only worth around $47 million.

Bukele likes to emphasize in his tweets that he bought bitcoins during "dips", i.e. short-term setbacks. But his timing was bad as things stand. In each of the ten deals, bitcoins cost more than they do today. "It was a long wait but it was worth it. We bought on the dip! 420 new bitcoins," he tweeted last October. At that time, one bitcoin cost around $58,600. He paid the lowest price in May when he bought 500 bitcoins “on the dip” for more than $30,700 each. The current rate: $20,540.

Cryptocurrencies have plummeted over the past few days. There are mutliple reasons for this. These include the failure of “stable coin” Terra and troubles at crypto lender Celsius Network, which halted withdrawals and transfers. Celsius belongs to the area of ​​so-called decentralized financial services. Here, transactions are processed using blockchain technology, which is also behind Bitcoin. Traditional financial service providers such as banks are not involved.

Of course, the losses Bukele made on his deals can only be temporary. Strong fluctuations are completely normal with Bitcoin, and the price can quickly shoot up again. On the other hand, given the high inflation, the US Federal Reserve has initiated a turnaround in interest rates, and the ECB is following suit. The years-long glut of cheap money that drove retail and professional investors into risky assets is coming to an end.

Meanwhile, El Salvador has a pressing problem. $800 million in debt is due in January. In order to be able to repay the money, the government asked the International Monetary Fund (IMF) for help. However, the IMF has stopped negotiations for a loan package worth US$ 1.3 billion and is demanding that Bitcoin's status as legal tender be revoked due to excessive financial risks.

Bukele had hoped to be able to solve the debt problem in a different way - for example with a "Volcano bond". Behind this pompous name is a government bond denominated in Bitcoin, with which the construction of "Bitcoin City" is to be financed. So far, this city only exists as a model. According to the President, it is to be built in the eastern region of La Union, using geothermal energy from a volcano and levying no taxes other than VAT.

However, the Ministry of Finance had put the issue of the ten-year government bond planned for last March on hold. One wanted to wait for the "right moment", it was said to justify. Meanwhile, the major rating agencies have downgraded the country's credit rating to junk.

But Bukele is apparently still loyal to Bitcoin. "El Salvador's finance minister says the $40 million bitcoin investment contraction is less than 0.5 percent of the state budget," Bitcoin Magazine tweeted on Tuesday. Bukele's reaction was prompt: "Are you telling me to buy more bitcoins?"

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