Cryptocurrency

Bukele’s Bitcoin deal increases El Salvador’s sovereign credit risk: Moody’s

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El Salvador’s historic embrace of Bitcoin (bitcoin) could have a negative impact on the country’s sovereign credit outlook, according to Moody’s Investors Service.

Moody’s analyst Jaime Reusche Tell Bloomberg said this week that El Salvador’s bitcoin strategy “certainly adds to the risk profile in a country that has struggled with liquidity issues in the past.”

Under the leadership of President Nayib Bukele, El Salvador recognizes Bitcoin as legal tender And issued a state-run crypto wallet to facilitate payments, transfers and ownership.Along the way, El Salvador accumulated a treasure chest of 1,391 BTC, of ​​which President Bukele is known for ‘buying the dip’ Has repeatedly exploited Bitcoin’s volatility to increase his country’s holdings.

However, Reusche warned that accumulating more BTC would increase El Salvador’s default risk. “If it gets higher, then that poses a greater risk to repayment capacity and the financial position of the issuer,” he said.

In addition to downgrading El Salvador’s credit rating, Moody’s warned that the country’s so-called bitcoin volcano bonds could limit its access to foreign bond markets. Proceeds from the Volcano bond, which is expected to raise about $1 billion, will be used to fund the Bitcoin City project in El Salvador.

related: Tonga will copy El Salvador’s bill to make bitcoin legal tender, says ex-MP

Attacks on El Salvador’s Bitcoin strategy by traditional financial institutions are nothing new. November 2021, Washington-based International Monetary Fund warn El Salvador opposes the use of Bitcoin as legal tender.At the same time, the World Bank has Refuse The country has asked for assistance in enforcing its bitcoin law over alleged environmental and transparency concerns about cryptocurrencies.

Nonetheless, El Salvador has firmly embraced Bitcoin and created an attractive environment for crypto investors and entrepreneurs.Last week, Finance Minister Alejandro Zelaya said that the country’s bitcoin laws have absorb foreign investment.