Country Focus

Moody’s says Bitcoin trades increase El Salvador’s credit risk

Moody’s has said that El Salvador’s Bitcoin trades represent extra risk to a sovereign credit outlook.

According to the company’s analyst, Jaime Reusche, the country’s credit outlook was already weak and showing growing signs of failure.

The government’s Bitcoin holdings “certainly add to the risk portfolio”, Reusche said.

He added that trading Bitcoin was “quite risky, particularly for a government that has been struggling with liquidity pressures in the past”.

President Nayib Bukele recently confirmed he had purchased Bitcoin using his phone, even though the government doesn’t publish data on its holdings.

Bukele said he bought some coins ahead of El Salvador’s adoption of Bitcoin as legal tender in September, and admitted taking advantage of price drops to buy more in the following months.

He also added that “two more countries will adopt it as legal tender”.

Reusche claims that El Salvador’s current ownership of an estimated 1,391 Bitcoins isn’t big enough to represent a threat to the government’s ability to meet its obligations.

However, he explained that the risk will increase if the government buys more of the cryptocurrency.

“If it gets much higher, then that represents an even greater risk to repayment capacity and the fiscal profile of the issuer,” he said.

Slower growth in remittance flows and economic activity this year will hit government revenues, Moody’s said, though a potential pension reform and a proposed blockchain bond issuance could provide some respite.

The Bukele administration also proposed a $1bn, 10-year dollar denominated bond issued via Blockstream’s Bitcoin settlement system known as the Liquid Network, rather than through normal channels.

Selling “a decent amount of Bitcoin bonds could potentially help them with their liquidity pressures”, Reusche noted.

But “unless Bitcoin bonds are very well received and oversubscribed, we are seeing that the probability of the need to restructure their traditional market bonds is increasing”.

Moody’s estimated that, at current prices, El Salvador’s Bitcoin holdings were potentially down between $10-20m.

Teuta Franjkovic

Starting out as a staff writer with Cosmopolitan, Teuta has risen through the ranks of business journalism, editing daily newspapers and websites in the IT and economics industries. With a passion for creating opportunities and bringing people together, Teuta turned her attention to the world of crypto and blockchain. She holds a double MA in Public Politics and Entrepreneurship.

Disqus Comments Loading...

Recent Posts

3DOS Launching Decentralized “Uber for 3D Printing” on Sui

Grand Cayman, Cayman Islands, 12th September 2024, Chainwire

1 week ago

Flipster Announces Collaboration with Tether

Warsaw, Poland, 20th August 2024, Chainwire

1 month ago

PEXX Announces Strategic Acquisition of Chain Debrief

Singapore, Singapore, 20th August 2024, Chainwire

1 month ago

Kwenta and Perennial Kickstart Arbitrum Expansion with 1.9M ARB

Grand Cayman, Cayman Islands, 26th July 2024, Chainwire

2 months ago

Ethereum could soon surpass the 3K price point

As usual, the crypto market is keeping everyone guessing what could happen next. After an…

2 months ago