CoinDesk Analysis Team
CoinDesk
There is an old saying in the market that ratings of traditional agencies are lagging indicators. Bitcoin holder El Salvador’s recent experience suggests the same.
Since Fitch downgraded El Salvador’s debt rating in September 2022 with a prediction of a debt default in January 2023, the country’s junk-rated bonds have skyrocketed, mirroring Bitcoin’s meteoric rise throughout 2023.
BTC vs El Salvador bond (TradingView)
According to market data, the value of El Salvador’s bonds are up 62%, and now trading at 72 cents on the dollar. During the same time period, bitcoin has risen 79%.
El Salvador’s bonds have even outperformed the Invesco Emerging Markets Sovereign Debt ETF (PCY), one of the largest holders of the country’s debt, according to Factset.
In January, the country announced it had repaid an $800 million bond which Moody’s predicted it would be unable to do.
El Salvador announced Bitcoin as legal tender in mid-2021 and began accumulating the cryptocurrency from September 2021. As of April, the country holds 2546 bitcoin, according to calculations by Bloomberg. The digital assets were bought for $108.2 million, and are currently worth $76.6 million per current market data.
Separately, Volcano Energy recently announced $1 billion in commitments to build a 241 megawatt (MW) bitcoin mine in the Metapán region of El Salvador. Investors include Tether, the issuer of USDT.
Ratings agencies disapprove
El Salvador's decision to diversify into bitcoin has consistently drawn the ire of ratings agencies and the International Monetary Fund.
“Policy differences related to the government’s embrace of bitcoin have lowered the probability that an IMF (International Monetary Fund) deal will be reached in time to address the government’s upcoming January 2023 $800 million bond maturity,” Moody’s wrote last fall.
In 2021, S&P wrote that El Salvador’s decision to adopt bitcoin as a legal tender would have “immediate, negative implications.”
“The risks” of El Salvador’s bitcoin adoption “seem to outweigh its potential benefits,” S&P wrote at the time. “There are immediate negative implications for (the) credit.”
In February, the IMF said that risks regarding El Salvador’s embrace of bitcoin "have not materialized due to the limited bitcoin use so far."
"Given the legal risks, fiscal fragility and largely speculative nature of crypto markets, the authorities should reconsider their plans to expand government exposures to bitcoin," the IMF said in a statement, reported by Reuters.
The change of fortune for Salvador’s bonds appears to be a part of a market-wide trend. Junk-rated bonds of Turkey, Argentina and Nigeria also outperformed investment-grade bonds early this year.
All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by CoinDesk constitutes an investment recommendation, nor should any data or Content published by CoinDesk be relied upon for any investment activities. CoinDesk strongly recommends that you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions.
Recommended Content
Editors’ Picks
Is Altcoin Season here as Bitcoin reaches a new all-time high?
Bitcoin reaches a new all-time high of $98,384 on Thursday, with altcoins following the suit. Reports highlight that the recent surge in altcoins was fueled by the victory of crypto-friendly candidate Donal Trump in the US presidential election.
Shanghai court confirms legal recognition of crypto ownership
A Shanghai court has confirmed that owning digital assets, including Bitcoin, is legal under Chinese law. Judge Sun Jie of the Shanghai Songjiang People’s Court shared this opinion through the WeChat account of the Shanghai High People’s Court.
BTC hits an all-time high above $97,850, inches away from the $100K mark
Bitcoin hit a new all-time high of $97,852 on Thursday, and the technical outlook suggests a possible continuation of the rally to $100,000. BTC futures have surged past the $100,000 price mark on Deribit, and Lookonchain data shows whales are accumulating.
Shiba Inu holders withdraw 1.67 trillion SHIB tokens from exchange
Shiba Inu trades slightly higher, around $0.000024, on Thursday after declining more than 5% the previous week. SHIB’s on-chain metrics project a bullish outlook as holders accumulate recent dips, and dormant wallets are on the move, all pointing to a recovery in the cards.
Bitcoin: New high of $100K or correction to $78K?
Bitcoin surged to a new all-time high of $93,265 in the first half of the week, followed by a slight decline in the latter half. Reports highlight that Bitcoin’s current level is still not overvalued and could target levels above $100,000 in the coming weeks.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.