Almost year ago Sunday (June 5), President Nayib Bukele announced El Salvador would make bitcoin a legal tender, on par with the U.S. dollar.
With bitcoin at $36,000 on that day, things looked even better on the morning of Sept. 7, when the law went into effect, with the cryptocurrency over $52,600. That evening, not so much. Bitcoin dropped almost $10,000 during the day, rebounding to $46,800, and popping up past $68,000 two months later. On its anniversary, bitcoin was hovering below $30,000.
That’s the least of El Salvador’s problems with its national cryptocurrency. Plans for a highly touted $1 billion bitcoin-backed bond — at rates well below traditional sovereign debt and incorporating a mechanism that would pay well if bitcoin blew up — have fizzled.
And with it, the country’s chances of making the $800 million eurobond payment coming due in January 2023 without the help of the International Monetary Fund (IMF).
The IMF had been relatively close to agreeing to a $1 billion loan to cover the bond payment before the decision to make a highly volatile digital asset legal tender. But it immediately made clear it considered the decision foolhardy and that the loan would not happen while bitcoin remains on an equal footing — legally — with the U.S. dollar that El Salvador also uses.
Read more: Bitcoin’s Still a Major Sticking Point in Talks With IMF
Along the way, the floor fell out from under El Salvador’s traditional bonds — which carried a high rate of interest pre-bitcoin — as rating agencies Fitch’s and Moody’s slashed the nation’s credit rating far below junk status, citing the bitcoin experiment as a large part of the reason.
The yield on its three-year notes has quintupled in the past 12 months, reaching past 42%. Factoring in the yields on other bonds and financial instruments, which haven’t done quite as badly, means that there has been “a decrease of more than 50%” in the price of its securities, according to El…
