Razing crisis in crypto market shaking the country’s economy to the core

El Salvador is hurting from the few days of chaos in the crypto market, as the South American country appears to be caught in an economic mess of its own making.

The current economic calamity facing El Salvador is as a result of its adoption of Bitcoin last year as an official currency. Now Bitcoin finds itself in free-fall following the collapse of crypto exchange, FTX.

Just over a week ago, FTX collapsed over a period of roughly 10 days following a report suggesting potential leverage and solvency concerns with the exchange facing liquidity crisis and trying to negotiate a bailout by rival, Binance. Those attempts quickly fell through, resulting in FTX’s assets being frozen, its CEO resigned, and it filed for bankruptcy within days.

As such, the ongoing implications for the future of FTX and the broader cryptocurrency industry are ongoing and difficult to assess but El Salvador is definitely hurting from this state of affairs in the crypto world

No dealings with FTX

El Salvador President Nayib Bukele has confirmed that the country never had business dealings with FTX, but the razing crisis in the crypto market is shaking his country’s economy to the core. El Salvador has invested US$107 million in bitcoin since January 2021.

Today, the coins are worth less than US$20,000 apiece, a loss of value of more than 60 per cent since January of 2022. The news has hit as the Central American country tries to persuade China to buy its foreign debt in exchange for a free trade agreement.

El Salvador owes US$21 billion to foreign creditors and its next bond payment is due in January of 2023. International credit rating agency, Fitch warned investors that El Salvador may default on its bond payments, with other rating agencies continuing to downgrade the country’s sovereign bonds.

Bukele, who is often described as a gambler, was advised by the International Monetary Fund a year ago not to venture into the crypto market, but he ignored the warning, arguing that Bitcoin could soon reach a value of US$100,000 per unit. Over the past few days, bitcoin was traded down for around US$16,000 apiece.