El Salvador's Bond Market Under Attack
EL Salvador has been in the news more now than I've ever seen in my life, I am guilty of never paying attention to the country apart from the gang infestation of the MS13 and that's as far as my knowledge of the country went.
Once it became the first country to make bitcoin legal tender and begin to attract bitcoiners to El Salvador, I started to pay attention to the country. The next step for the country was to start its own mining operation and now launching bitcoin-backed bonds.
As the country continues to find itself with bitcoin and bitcoin adjacent products, it's lowering its debt obligations and its reliance on international lenders like the IMF. We've seen the IMF issue a plea to the country to reconsider their decision to use bitcoin as legal tender and that was met with a resounding no by the president on Twitter.
BREAKING: EL SALVADOR DGAF https://t.co/VuJ25PcvQL
— Nayib Bukele 🇸🇻 (@nayibbukele) January 17, 2022
Rating agencies snapback
One of the largest rating agencies in the U.S., Fitch Ratings, which externally grades financial products has downgraded El Salvador’s long-term default rating. El Salvador bonds have been downgraded to deeper status, the agency has openly cited the risks from adopting bitcoin as legal tender the key reason.
The rating agency explained:
In Fitch’s view, weakening of institutions and concentration of power in the presidency have increased policy unpredictability, and the adoption of bitcoin as legal tender has added uncertainty about the potential for an IMF program that would unlock financing for 2022-2023.
The rating agency also said that “heightened financing risks stemming from increased reliance on short-term debt” ahead of an $800 million global bond payment due next January influenced its decision to cut El Salvador’s rating.
Not the first downgrade
Fitch follows another rating agency as we saw in July 2021, Moody’s Investors Service downgraded the government of El Salvador’s long-term foreign-currency issuer and senior unsecured ratings from B3 to Caa1.
Moody's stated that El Salvador’s “outlook remains negative,” citing concerns over the use of bitcoin as legal tender in the country.
Ratings don't set credit risk
Now ratings downgrades do sound like a horrible thing and it can be, if you're heavily backed by certain funds that require you to hold a certain rating, but El Salvador was never really investment grade so it hardly affects them. And since they're not looking to raise much capital in the traditional system, it's not exactly a pain for them.
In addition, ratings don't mean much these days, Canada for example is rated AAA but their bonds are far from investment grade if we look at the yield and risk you're taking.
Ratings are one measurement, but interest rates are the real measure of borrowing risk, and with El Salvador able to raise cheaper capital with its bitcoin bonds versus its old bonds it doesn't seem like an issue for them.
If anything they could refinance all their old debt into these new bonds and have lower coupon payments. As a bitcoiner, you need to be a FUD buster and look past the headlines and deeper into the meaning or you may get knocked into making bad trades.
I say bring it on, keep attacking bitcoin and bitcoin proponents, because we can take it.
Source:
Have your say
What do you good people of HIVE think?
So have at it my Jessies! If you don't have something to comment, "I am a Jessie."
Let's connect
If you liked this post, sprinkle it with an upvote or esteem and if you don't already, consider following me @chekohler and subscribe to my fanbase
| Safely Store Your Crypto | Deposit $100 & Earn $10 | Earn Interest On Crypto |
|---|---|---|
 |  |  |
Posted Using LeoFinance Beta
I've been following Bukele on Twitter for a while now, and the guy's a chad.
It's definitely made the list of retirement options.
He sure is entertaining, as for some of the things he does with bitcoin and his government I am not yet convinced, I wonder if he steps away when his term ends
Dear @chekohler , Do you expect small and medium-sized countries in Latin America to make Bitcoin their fiat currency, like El Salvador?
Are you planning to invest in El Salvador in the future to avoid taxes imposed by countries on cryptocurrencies?
Moving to El Salvador isn't on the cards for me lol I am not that rich, may be if I could get a job there, but I think more countries will come around and give us more options to pick from in the near future. I do think smaller countries are the better option as economies come under pressure
I agree with you! Thanks for giving me a lot of hints.😉
El Salvador government doesn't what hear anything thing from IMF or any agency because I Avery sure they weigh their options and found Bitcoin to be more safer for them.one thing I like about El Salvador government is their courage toward bitcoin
They've been squeezed by their dollar dependence for so long and things like this only push them further down the bitcoin entrenchment journey and while I think theres a lot that can still go wrong switching to bitcoin so early, I do feel more bullish on what they are doing and the gap they leaving on other countries
Yeah they might be too quick with the way they are trying to make Bitcoin their legal tender but they must have putting some factors such as long term into consideration so I think they will know to adjust if it goes against them in future.
How would they know if they are the first to do it? Many mistakes will be made when you move into unknown territory
Nothing good comes easy I guess . These are challenges I’m sure Prez Nabile is/was aware his country will be facing for adopting crypto ; be that as it may bitcoin as a legal tender has come to stay in El-Salvador. No relenting!!
It's not just him, he needs to get buy in from an entire country, if his term ends, he needs to know that his replacement will continue the push for bitcoin, this is a multigenerational thing
I see, multigenerational legacy.
The only country that fully advocates cryptocurrencies is El Salvador. A few countries also need to defend cryptocurrencies. El Salvador is struggling so hard on its own
El Salvador is advocating for bitcoin, not crypto, any country that put their faith in crypto would want to collapse their economy theres a big difference
Well, we cannot deny that having large sums of money in crypto is risky. In 2008 we blamed Fitch, Moodys and S&P for giving AA to risky structured mortgages.
They didn't structure the mortgages, rating agencies have nothing to do with creating financial products, they're just rating shops that can get bought off to give ratings to bullshit
Sure. (I am a retired professional investor); I said : "They gave AA "; that is rating, giving a double or triple A status. But we are saying the same I guess
It's interesting to see a nation-state going this direction. The pressures against it are massive, I hope they can succeed.
What's a Jessie btw?
Indeed, and I like to see the experimentation, having your own mining operation, offering bitcoin-backed bonds and no taxes on bitcoin, I am keen to see the long term effects of all these initiatives
The cripto atack Is inminent, but we survived to this, i am inside AND see how our country Is atacking but do not bothering we are prepared AMD the comunity do not let us fall.
Crypto won't survive any real attack by governments and the community isn't going to do jack when the government comes around. It's only bitcoin that can survive attack because its designed that way and has individuals that will act to defend it out of pure self interest