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El Salvador Ramps Bitcoin – Is It Worth the Risk?

 


President Bukele once again announced via social media that his country had bought more Bitcoin. However, in the summer of 2022 it seems that the rolls will be much smaller than last year. Because it is a modest 80 BTC. What is certainly a handsome fortune for the average citizen is, in the dimensions in which state budgets move, more of a drop in the ocean.


According to Bukele, they bought for an average price of $19,000, which means an investment of around $1.5 million. Overall, the position his country holds is clearly under water, with a paper loss of over 55%. The same is true for pioneer MicroStrategy, as Michael Saylor's company also raised large sums during the 2021 bull market.


For El Salvador, there is a very high risk in government purchases, because the country's finances are not in good shape. With the worsening situation in Ukraine, inflation and rising energy prices, poorer countries have even less room for manoeuvre.


Dangerous state of emergency extended

At the same time, the whole country is in a state of emergency because gang crime is out of control. Organizations like the dreaded "MS-13" control entire parts of the small country and do not shy away from extreme acts of violence.


To deal with this situation, the government has decided to crack down. Human rights organizations complain that there are arbitrary arrests and that prisons are overcrowded at around 250%. There are also deaths to be lamented and increasing militarization in order to be able to counter the extreme gang violence.


This means that many economic and social issues are likely to be much more pressing for El Salvador than investments in Bitcoin. Recently there has been a war between gangs and government troops.


IMF exerts pressure

Accordingly, Bukele is showing itself to be inflexible with its renewed acquisition. Because in addition to the problems at home, the IMF has been insisting for some time that the Bitcoin strategy be abandoned. El Salvador urgently needs money in the form of loans, but this is always subject to conditions.


Meanwhile, the Bitcoin projects are on hold. Neither the "Bitcoin City" nor the planned "Bitcoin Bonds" have been implemented so far. So far, however, there has been no fear of a national bankruptcy. One can only hope that the government's speculation will pay off, because unlike MicroStrategy or professional investors, Bukele gambles with what little money there is in a country. A failure would not only be a fatal loss of image for Bitcoin, but also for the citizens of El Salvador.

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