El Salvador became the first country to make bitcoin legal tender in September despite multiple warnings from financial institutions.
MARVIN RECINOS/AFP via Getty Images
El Salvador – which became the first country to make bitcoin legal tender in September — has lost $36 million in cryptocurrency as bitcoin plummeted over 50% from its all-time high on Thursday.
President Nayib Bukele bet big that bullish bitcoin investments could rescue El Salvador's economy from its growing debt-to-GDP ratio. Now, the crypto market's crash is fulfilling critics' warnings against investing treasury funds into volatile digital currencies.
Bukele's administration has spent a total of $103 million on 2,301 bitcoins since September of last year, according to Bloomberg data. As of Thursday afternoon, the coins were valued at around $67 million. El Salvador currently owes an estimated $23.3 billion in national debt.
The International Monetary Fund (IMF) issued multiple warnings to the administration about legalizing bitcoin as an acceptable form of payment for any purchase or debt. In February, Fitch Ratings downgraded El Salvador's default rating from a "B-" to a "CCC," citing financing uncertainty spurred by the law.
"Households and businesses who hold Bitcoin balances and save in Bitcoin could lose wealth through large swings in value," the IMF El Salvador team, led by Alina Carare, warned in February.
"The adoption of Bitcoin as legal tender is fully funded by public money, through a trust fund. If the price of Bitcoin was to plummet, the resources in the trust could be rapidly depleted," IMF continued.
Undeterred by the drop, President Bukele announced "El Salvador just bought the dip!" on Monday. The purchase was the country's largest to-date, adding 500 bitcoins priced at an average of $30,744 each to its holdings.
—Nayib Bukele (@nayibbukele) May 9, 2022
Bukele's bullish investment in cryptocurrency has led to a mixed reception by the country's citizens, with past bitcoin protests drawing thousands of attendees. A spokesperson for the administration did not immediately respond to Insider's request for comment.
According to a September survey of 1,281 people, most Salvadorans (67.9%) disagree with the government's decision to make bitcoin legal tender. The nation's digital wallet, "Chivo Wallet," has not seen widespread use as the majority of sales continue to be paid in physical currencies, as Insider has previously reported.
Do you live in El Salvador? Were you impacted by the bitcoin crash? Contact this reporter at htowey@insider.com
