El Salvador’s historic use of bitcoin (BTC) could have negative implications for the country’s sovereign credit outlook, according to Moody’s Investor Service.
Moody’s analyst Jaime Roci told Bloomberg this week that Bitcoin’s maneuvers in El Salvador “definitely increase the risk portfolio” for a country that has struggled with liquidity problems in the past.
Under the leadership of President Naib Bukele, El Salvador recognized bitcoin as a legal tender and issued a state-owned crypto wallet to facilitate payments, transfers and ownership. Along the way, El Salvador has amassed a supply of 1391 BTC, and President Bukele has been known to “buy dip” several times, using bitcoin fluctuations to increase the country’s reserves.
However, Reusche warned that hoarding more bitcoin would increase the risk of El Salvador defaulting. “If it rises too much, it will create more risk to the issuer’s solvency and financial profile,” he said.
In addition to downgrading El Salvador’s credit rating, Moody’s warned that the country’s so-called volcanic Bitcoin bonds could limit access to foreign bond markets. The proceeds from the Volcano bonds, which are expected to generate around $ 1 billion, will be used to fund the Bitcoin City project in El Salvador.
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Bitcoin gambling attacks in El Salvador by old financial institutions are nothing new. In November 2021, the Washington-based International Monetary Fund warned El Salvador against using Bitcoin as a legal tender. Meanwhile, the World Bank rejected the country’s request for help in implementing the bitcoin law due to alleged environmental and transparency issues.
However, El Salvador continues to embrace Bitcoin and create an attractive environment for crypto investors and entrepreneurs. Finance Minister Alejandro Celaya said last week that the country’s bitcoin law had already attracted foreign investment.