Panic in El Salvador as Bitcoin crashes and market price drops

El Salvador has amassed an estimated 2,301 bitcoins since announcing it would recognize the world’s largest cryptocurrency as legal tender a year ago. (Read More Here).

El Salvador President Nayib Bukele has made it a habit to “buy the dip” in recent months, often taking to Twitter to brag about locking in lower prices. At the time of Bukele’s last Twitter update, the country’s bitcoin reserves totalled about $71.4 million. 

But recent market conditions have pushed bitcoin’s price even lower, driving El Salvador’s holdings down to around $52 million. 

The sell-off comes as El Salvador continues to delay the issue of its highly anticipated “volcano bonds,” which were originally slated to launch in March 2022. The country opted to postpone the planned $1 billion offering, which is supposed to fund El Salvador’s “Bitcoin City,” following turbulence in the markets, Finance Minister Alejandro Zelaya said. 

The bonds are largely seen as one of the Central American nation’s last hopes of meeting its financing needs. The International Monetary Fund (IMF) has expressed concern about the sustainability of El Salvador’s bitcoin experiment and is unlikely to approve loan payments. The World Bank also refused to help the country with its bitcoin adoption plans when they were first announced in June 2021. 

El Salvador has an $800 million bond maturing in January 2023. In July 2021, ratings agency Moody’s downgraded the country’s debt rating to CAA1, meaning it is considered at risk of defaulting on loans. 

Public perception is deteriorating, too, thanks to various tweets from Bukele making light of the situation. Bukele trades bitcoin on behalf of El Salvador on his cellphone, he admitted in another tweet.

Fast forward a couple decades later, central bankers and financial regulators from 44 emerging market countries gathered in El Salvador for the Alliance for Financial Inclusion (AFI) summit. Contrary to popular opinion on social media, this was not a Bitcoin event but it generally focused on financial inclusion, in line with AFI's vision of “Making financial services more accessible to the world’s unbanked.” It's interesting to note, however, that financial exclusion is a natural consequence of the current monetary system due in part to the inherent cost structures that financial institutions have to bear to profitably "bank" customers, as well as the costs imposed by a credit-based payment system which doesn't have instant final settlement of payments. These are disadvantages that the Bitcoin network does not have, even from a financial inclusion perspective. For example as of 2017 only 29% of Salvadorans had a bank account, but the Chivo Bitcoin wallet now boasts of 2.6 million users (approximately 40% of the population) since bitcoin became legal tender last year. Bitcoin is definitely the most financially inclusive network in the world.

According to a tweet by the president of El Salvador, Nayib Bukele, multiple issues were discussed during the conference that included banking the unbanked, the digital economy and the benefits of El Salvador's bitcoin adoption. It's also worth noting that this conference was held at a time when the global economy is shaky and characterized by rising inflation levels, rising commodity prices, geopolitical tensions as a result of the war in Ukraine, a looming recession and a weakening dollar. While the aforementioned conditions are different from the state of affairs in 1944 when Bretton Woods kicked in, interestingly, the above factors combined have provided a perfect storm for a new monetary order. For example, after the seizure of Afghanistan and Russia's foreign reserves by the U.S., it became evidently clear to most nation-states that U.S. Treasurys were no longer the "risk-free" assets that they used to be, and that diversification away from "freezable assets" is a matter of national security. Nic Carter summarized this perfectly in an op-ed piece, writing the following, "While seizing Afghan or Russian reserves may feel righteous and just, the immediate effect of such action is to completely undermine the credibility of dollar debt as an international savings device." As dollar hegemony hangs in the balance, the birth of a new monetary system is imminent.

Teodora del Carmen Vásquez was nine months pregnant and working at a school cafeteria when she felt extreme pain in her back, like the crack of a hammer. She called 911 seven times before fainting in a bathroom in a pool of blood.

The nightmare that followed is common in El Salvador, a heavily Catholic country where abortion is banned under all circumstances and even women who suffer miscarriages and stillbirths are sometimes accused of killing their babies and sentenced to years or even decades in prison.

When Vásquez regained consciousness, she had lost her nearly full-term fetus. Instead of an ambulance, officers drove her in the bed of a pickup through heavy rain to a police station. There she was arrested on suspicion of violating El Salvador’s abortion law, one of the world’s strictest. Fearing she could die, authorities eventually rushed her to a hospital, where she was chained by her left foot to a gurney. She was prosecuted, convicted and given 30 years in prison for aggravated homicide.

“This is the reality that we have lived, and I am not alone,” said Vásquez, who ended up serving more than 10 years for what she has always said was a stillbirth. “Any woman who arrives to jail accused of having an abortion is seen as the most evil, heartless being.”

“From the moment we get pregnant, we become incubators,” said Vásquez, who was freed in 2018 after her sentence was commuted. “We lose our rights because the only possibility that we have of a life is taking care of the product inside us. It’s violence against us.”

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