El Bagholder strikes again


We all complain about politicians. But spare a thought for the people of El Salvador, whose laser-eyed crypto bro president is day-trading an already troubled country into even deeper penury.

Here is Nayib Bukele’s latest. A reminder, this is the president of one of the world’s poorest countries, not a spotty Reddit trader who took shrooms while watching Michael Saylor videos and decided to embrace the “cyber hornets serving the goddess of wisdom”.

The story of El Salvador’s pivot to bitcoin has been well told many times before — car crashes always attract rubbernecking, and it’s not often you can see the accident before it happens — but we were curious over how bad its P&L was now.

Having spent a few unhappy hours trawling through Bukele’s Twitter account, we think we’ve found all the official purchases, for a total of 2,280 bitcoin since the first announced 200 on September 6 2021, the day before bitcoin officially became legal tender in El Salvador. A day later, “El Hodlador” said he had already bought another 200.

In some cases Bukele announced the average purchase price. In the others FT Alphaville simply took the price on the day of announcement as a reasonable proxy for the cost. Bitcoin purchases totaling 150 coins were not announced on Twitter, but just announced as part of El Salvador’s stash. And obviously we don’t know what the country actually holds itself at the moment, and how much might have “leaked”.

But taking the announcements at face value, and with the mentioned assumptions, We found that El Salvador has spent about $101.5mn on its 2,280 bitcoin. Despite Bukele comically bragging about already turning a profit on yesterday’s purchases, its crypto trove is at pixel time worth $72.6mn

A country with GDP per capita of $3,799, reserves of under $4bn (only equivalent to three months of imports, typically seen as a danger level) and government debts of over $13bn (about 85 per cent of GDP) has lost about $28.9mn on its crypto punts over the past half year.

Here’s a chart showing the grim trajectory of the world’s first sovereign bitcoin bagholder.

Line chart of Dollar per bitcoin.  showing Ruining a nation

Of course, bitcoin bros will shout that the bitcoin acquired by El Salvador will prove a bargain when the cryptocurrency eclipses gold and even the US dollar. It seems that Bukele remains popular domestically, though mostly thanks for taming violence. (That already seems to be reversing after a truce between gangs and the government unravelled).

The IMF has already made its views clear. The market’s view of El Salvador’s bitcoin huffing is also pretty unequivocal: A country that was probably bankrupt is now almost certainly bankrupt.

El Salvador’s mooted “bitcoin bond” looks DOA. But here is the price of its $800mn bond that comes due next January. Despite maturing in less than a year, it’s trading at 76.9 cents on the dollar. That makes for a yield of over 50 per cent.

UPDATE: We were planning to also highlight the timely work of our colleague Ethan Wu over on Unhedged, but the tragicomedy of the situation distracted us.

In today’s Unhedged, Ethan explored an interesting paper on El Salvador’s bitcoin experiment, and the results have been predictably underwhelming.

The typical Chivo user was a young, high school-educated man with access to the internet and the formal financial system — undermining Bukele’s claims the tech would boost financial inclusion. The most common reason for using Chivo was cashing out the $30 bonus; 61 per cent of users abandoned the app immediately after.

Even among Chivo users who did take remittances, most did so in dollars, not bitcoin. Likewise, some businesses, about 20 per cent, do accept bitcoin. But these are mostly bigger firms, and nearly all convert to dollars immediately after making bitcoin sales.

You can find the full paper here.

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