Speculate with taxes
Bitcoin fan Bukele is betting millions
By Jan Ganger
Nayib Bukele’s bitcoin offerings are not doing well at all at the moment. So far the president of El Slavador has grossed more than $ 50 million from his deals. But he remains loyal to cryptocurrency.
Putting tax dollars into highly speculative cryptocurrencies isn’t necessarily a good idea. This is currently impressively demonstrated by Nayib Bukele, president of El Salvador and an avowed fan of Bitcoin.
Last year, Bukele ensured that Bitcoin became legal tender in the Central American country. According to his own statements, he has bought a total of 2,301 bitcoins since September and has spent more than $ 100 million on them. There are no official data on the matter, the head of state announces the purchases only via Twitter. If you believe Bukele, he’s been making a lot of tax money on purchases at the moment. After the cryptocurrency crash, the wallet lost more than half and is currently only worth around $ 47 million.
Bukele likes to point out in his tweets that he bought bitcoin during “dips”, ie short-term setbacks. But his timing was bad the way things are. In each of the ten offerings, bitcoins cost more than today. “It was a long wait, but it was worth it. We bought down! 420 new bitcoins,” he tweeted last October. At the time, one bitcoin cost around $ 58,600. He paid the lowest price in May when he bought 500 “falling” bitcoins for over $ 30,700 each. The current rate: $ 20,540.
Cryptocurrencies have plummeted in the past few days. There are many reasons for this. These include the bankruptcy of “stable currency” Terra and the problems of cryptocurrency lender Celsius Network, which has stopped withdrawals and transfers. Celsius belongs to the area of so-called decentralized financial services. Here, transactions are processed using blockchain technology, which is also the foundation of Bitcoin. Traditional financial service providers such as banks are not involved.
Credit is “junk”
Of course, Bukele’s losses on his business can only be temporary. Strong fluctuations are completely normal with Bitcoin and the price can rapidly rise again. On the other hand, given high inflation, the US Federal Reserve has initiated a turnaround in interest rates and the ECB is following suit. The years-long cheap cash glut that has pushed retail and professional investors into risky businesses is coming to an end.
Meanwhile, El Salvador has an urgent problem. In January, $ 800 million in debt will expire. In order to pay back the money, the government asked the International Monetary Fund (IMF) for help. However, the IMF has halted negotiations for a $ 1.3 billion loan package and is demanding that Bitcoin’s status as legal tender be revoked due to excessive financial risks.
Bukele hoped to be able to solve the debt problem in a different way, for example with a “bond volcano”. Behind this pompous name there is a government bond denominated in Bitcoin, with which the construction of “Bitcoin City” is to be financed. So far, this city exists only as a model. According to the president, it should be built in the eastern region of La Union, using geothermal energy from a volcano and not collecting taxes other than VAT.
However, the Ministry of Finance had suspended the issuance of the ten-year government bond last March. They wanted to wait for the “right time”, they said to justify. Meanwhile, major rating agencies have downgraded the country’s rating to junk.
But apparently Bukele is still loyal to Bitcoin. “El Salvador’s finance minister says the $ 40 million investment contraction in bitcoin is less than 0.5% of the state budget,” Bitcoin magazine tweeted Tuesday. Bukele’s reaction was quick: “Are you telling me to buy more bitcoins?”