The Media Hasn’t Been Entirely Fair to Bukele’s Bitcoin Gambit
Most members of the media have considered the negative components of President Nayib Bukele’s Bitcoin Gambit in El Salvador. It is true that the value of Bitcoin has tumbled since the president first bet big on the cryptocurrency. It is true that the IMF and lenders look at the country’s economic policy with extreme distrust, and agencies have dropped the country’s credit rating. It is true that the country has over a billion dollars in debt payments due over the next twelve months. If you look at how things have played out this far, you could say that it hasn’t quite gone as Bukele has hoped. In fact, many have said that.
But, let’s be pragmatic. Estimates show that the country has spent $374 on the Bitcoin gambit, in totality. A $50 million unrealized loss on Bitcoin holdings, in a country with a $29 billion economy, is less than a half percent of the national budget. But that unrealized loss is unrealized for a reason. President Bukele is doubling down on Bitcoin. He’s even bought the dip. He understands that this drawback is due to macroeconomic conditions, not the least of which being staggering inflation due to massive pandemic-related spending packages. Then, there’s an unpredictable war in Eastern Europe, not to mention the ongoing supply chain issues, still lingering from Covid shutdowns.
Those things have rained hellfire onto the digital assets space, but so, too, have they affected the traditional markets. The Dow Jones lost 1100 points in a single day of trading last month. Bukele knows that Bitcoin will bounce back. His investment in Bitcoin is one which is long-term. That said, he’s up for re-election in 2024 and continues to boast high approval ratings, thanks, in part, to his tough-on-crime stances.
The truth is that the economy in El Salvador has long been plagued by unfavorable conditions. The country has long paid a premium for its debt. In the country’s most recent credit downgrade, Fitch maligned the country’s “uncertain access to multilateral funding and external market financing given high borrowing costs,” in addition to its “limited scope for additional local market financing.”
But, let’s consider that. El Salvador has long had precious few major opportunities. Through the Bukele’s Bitcoin Gambit, the country has re-emerged on the global scene. While the move to Bitcoin was aimed at bringing the majority unbanked population into the modern financial scene, that takes time and consumer education. What the country has seen, immediately, is external interest. That, in and of itself, is significant, considering that, not long ago, El Salvador was more dangerous than Afghanistan.
Gambit — a term that many may only be familiar with from the recent Netflix hit, The Queen’s Gambit. But the definition, in part, says: an “opening remark, typically one entailing a degree of risk, that is calculated to gain an advantage.” Bukele put his country on the map again. Sure, there are real risks. Significant risks. It may well be the final nail in the country’s bid for a billion-plus dollar loan from the IMF. However, he has propelled El Salvador into the spotlight, creating a culture of innovation which is tech friendly and forward focused. Unfortunately, Bukele’s gambit launched right before a massive downturn in the markets, driven by investor fear. However, the cause doesn’t matter. Whether Bukele will be regarded as a forward-thinking leader is entirely dependent on Bitcoin’s turnaround.
There’s little doubt that Bitcoin will, indeed, turn around. But, timing is everything. Until then, there’s much to be said for the tourism boost that the tiny Central American country has received. Tourism is up 30% since Bitcoin became legal tender. The administration has planned a Bitcoin City, complete with mining powered by a volcano. Granted, the project is on hold due to market conditions, but El Salvador has a number of irons in the fire that they didn’t have three years ago.
In their cryptocurrency wallet rollout, only 20% of users continued to use the wallet after they spent their $30 in Bitcoin given to them by the government, but many argue that was due in large part to a poor user experience within the wallet. There’s a great deal that the country must work on, even within the master Bitcoin plan. Beyond it, it must find a way to begin to balance their budgets and continue to lower crime rates. However, if Bitcoin bounces back, and if the country can bring in significant external investments, many may look back at this gambit in a positive light. There are many opportunities to exploit, once the market begins to correct. In addition to the tourism angle and the mining apparatus, if the country continues to work on its economic fundamentals and infrastructure, it could see interest as a jurisdiction which is friendly to fintech and other cutting-edge innovations.
Sure, there’s a lot of risk here. And President Bukele has suffered the consequences of pretty poor timing. However, the gambit isn’t over until his political shelf-life wears out. And, right now, it doesn’t appear that will be in the near-term.
Bitcoin Surge to 9-Month High Amid Banking Turmoil
Bitcoin has surged to a 9-month high amid the banking turmoil in the United States. The flagship cryptocurrency is up by 50% since the beginning of 2023, trading at $27,779 at the time of writing this report.
Investors King earlier reported that the crypto mobile applications also increased by 15 per cent due to the uncertainty surrounding the US banking sector following the collapse of three big banks in the United States. It would be recalled that Silvergate, Signature and Silicon Valley Banks were shut down last week due to issues related to liquidity.
Investors and crypto experts have extolled the resilience of Bitcoin amid the banking crisis last week. They noted that bitcoin is trading at its lowest correlation to stock in months. Thereby making the most capitalised cryptocurrency a valuable alternative asset.
For instance, the Head of Ark Investment, Cathie Wood said “Indeed, during the last week, crypt assets behaved like safe havens: along with gold”.
Meanwhile, Bitcoin continued to hold firm during the early trading hours on Tuesday (today) while other crypto assets were trading lower. Traders across the globe are looking at the US Federal Reserve’s interest rate hike as its two-day FOMC meeting begins today.
Similarly, there has been an additional confidence boost in the global banking sector following Sunday’s announcement that Swiss banking giant UBS agreed to buy its crisis-hit rival Credit Suisse in an emergency deal worth over $3 billion.
Several largest central banks, including the Federal Reserve, the Bank of England, and the European Central Bank, also came together on Sunday to announce “coordinated action” to enhance liquidity in their standing U.S. dollar swap arrangements.
Interestingly, experts have predicted that bitcoin would benefit from central bank efforts to bolster liquidity in the global financial system. Bitcoin rose to a record of $69,000 in November 2021 after central banks and governments launched unprecedented monetary and fiscal stimulus measures.
Bitcoin Jumps Above $24,000 in Minutes Following Joe Biden’s Speech
Following Joe Biden’s speech, the world’s most capitalised cryptocurrency, Bitcoin jumped above the $24,000 mark in minutes.
In a widely televised speech, the U.S. president assured that the American banking system is “safe.”
Immediately after the news, Bitcoin surged by 6%, adding to the gain it has already recorded. Investors King earlier reported that digital assets across the cryptocurrency market are trading in green following Binance’s announcement that it plans to convert $1 billion to BTC, BNB and Ethereum.
After briefly touching $24,500, the flagship cryptocurrency exchanged hands at $24,170 as of the time of writing this report. Additionally, many of the alternate coins including Ether (ETH), Binance Coin (BNB), and Cardano (ADA), also responded positively to the announcement.
It would be recalled that the recent collapse of Silicon Valley Bank (SVB) and Signature Bank (SB) has caused severe panic, with some predicting a further decline in the banking sector.
In the highly anticipated speech, the President of the United States, Joe Biden, stated that Americans should have confidence in the local banking system, describing it as “safe”. He also assured that customer deposits remain available.
The United States President however noted that taxpayer funds won’t be used to bail out Silicon Valley Bank and Signature bank. He clarified that the money would come from the fees that banks pay into the Deposit Insurance Fund.
“Every American should feel confident that their deposits will be there, if and when they need them,” Biden said.
Meanwhile, the upward rally which has seen most of the cryptocurrencies recording double-digit gains has renewed interest in the once-abandoned digital currencies.
Similarly, the total cryptocurrency market capitalization has climbed back to $1.09 trillion, gaining 12% in the last 24 hours.
Experts have posited that once bitcoin breaks the $25,000 a coin resistance level, the digital currency will set a new mid-term record year.
However, a senior analyst at Investors King Ltd, Samed Olukoya described the recent surge in cryptocurrencies value as artificial, largely instigated by $1 billion expected to be injected into the space by Binance. To sustain the bullish run, institutional investors need to start investing in the space again.
“$1 billion additional liquidity in a market with almost $1 trillion capitalisation won’t do much without sustenance.”
Uncertainty as US Government Transferred 9,861 BTC to Coinbase
There was uncertainty on Wednesday as the United States government transferred 9,861 BTC worth $214 million to Coinbase. The asset is worth $214 million as of the time of the transfer.
According to crypto analytic firm, Glassnode, the Bitcoin forms part of the assets seized from the Silk Road hacker in November 2020 when BTC was priced at $11,000.
Silk Road was an online black market created by Ross Ulbrich back in 2011. Silk Road was however shut down in 2013, and, founder, Ulbrich is now serving a life sentence without the possibility of parole after being convicted of engaging in a criminal enterprise, distributing narcotics and conspiracy to commit money laundering.
Although the purpose of the transfer was not clear, there is fear that the assets were to be sold in the market which could cause a further draw down for the flagship cryptocurrency.
Regardless of the government’s intentions, the move has not had a significant impact on the cryptocurrency market as of the time of writing this report.
Investors King understands that US authorities have repeatedly held auctions to sell Bitcoin exhibits but have never been recorded transferring digital assets directly to the exchange like that.
Over the years, the United States government has seized huge amounts of cryptocurrencies, particularly Bitcoin from hackers.
In February 2022, the US Department of Justice announced that it had found the culprit of the 2016 Bitfinex attack, seizing all 94,000 BTC.
By November of the same year, US authorities continued to recover another 50,000 BTC from an individual accused of hacking into Silk Road.
Meanwhile, Bitcoin prices also saw adverse movements after Federal Reserve Chairman Jerome Powell said that high inflation continues to cause difficulties.
Powell noted there is a “long way” to get inflation back to 2%, and the road to the target will likely be “bumpy.” Bitcoin is currently trading at $22,173.07, down 1.36% over the past 24 hours.
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