Bitcoin falls, El Salvador towards an agreement with China?

Chute du Bitcoin: La Chine à la rescousse du Salvador ?

Bitcoin was not really needed! Already in crisis, Bitcoin went even further with the collapse of crypto exchange FTX. The bad crypto pass puts many investors in the red. Among those investors is El Salvador, the country that adopted Bitcoin as its official currency in 2021.

El Salvador bets on Bitcoin

Another time, another era… Last year, crypto prices broke record after record. So much so that the president of purifier Nayib Bukele had decided to bet on this new crypto gold. So, the country had made a decisionAdopt Bitcoin as one of its official currencies. The other official currency is the US dollar.

A little more than a year after this formality, it is time for grimace soup on the part of El Salvador. It must be said that the country blacklisted by the IMF and the United States at their discretion. President Bukele mocked his positions and always showed complete faith in Bitcoin. In addition, at the beginning of the year, he predicted that the price of Bitcoin would reach $100,000 in 2022.

Unfortunately, the crypto winter passed and the price of BTC fell. At the time of writing this article, the price of Bitcoin is €16,250, which is a drop of almost 60% compared to the beginning of the year. Indeed, at 1er January 2022, the Bitcoin price was € 40,717.

Another prediction by President Bukele for 2022 was about theissue “volcano bonds”. The aim of these “bonds” was to generate passive income by investing in volcanic energy for Bitcoin mining activities. Obviously things didn’t go the way he wanted. The price of Bitcoin fell and the “volcano bonds” never saw the light of day.

“If Bukele dreamed that he could create an innovative and different monetary policy against the advice of the IMF, that dream has failed. » Luis Membraño, economist in El Salvador

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El Salvador, financially isolated

To be transparent, there is one Bitcoin drop little impact on the country’s economy, especially on his debt. In fact, if the country bought a lot of bitcoins, most of the country’s monetary reserves remain in dollars. The problem is more about thecountry isolation. As explained above, the choice to “formulate” Bitcoin was one-sided and opposed by the United States and the IMF.

On the other hand, the dollar is the other official currency of El Salvador. However, in a period of high inflation like at the moment, the country is like that the printing press cannot be rotated.

This situation is not easy for the country, especially since a big bill will soon be due… In fact, in January, the country must pay its equivalent 667 million euros for the amortization of the euro bonds. On the strength of very optimistic predictions at the beginning of the year, President Bukele had bet on Bitcoin to pay this amount. From now on, his options are very limited … but one candidate is offering to lend him a hand.

El Salvador is moving even further from the United States to get closer to… China

Coincidence or not, at the same time as the FTX exchange was declaring bankruptcy, President Bukele announced the signing of his Free trade agreement with China ! El Salvador’s vice president said China was ready to buy El Salvador’s $21 billion in foreign debt. Of course, this deal is not a gift and would allow the Chinese to place their bets.

“China acts as a lender, they make a lot of money with these deals. (…) But they often take advantage of this to combine these loans with commercial and strategic partnerships, which start Chinese companies. Evan Ellis, Senior Fellow at the Center for Strategic & International Studies in Washington DC

Such an agreement would mean a turning point in El Salvador’s politics. Concretely, this would align El Salvador with China. China would do the El Salvador’s main lender. The country would then definitively mark its separation from the United States.

I have to say that relations between China and El Salvador has been revived since 2018. At that time, El Salvador had stopped its relations with Taiwan, to the great satisfaction of China. Then China started investing in El Salvador, building stadiums, bookstores, etc.

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