A State turned upside down because of Bitcoin – Thanks to the unwavering support of its President Nayib Bukele, El Salvador made history this September 7, 2021, by becoming the first country to recognize Bitcoin as a legal tender.
Predictably, traditional finance and supranational bodies are not at all on board with this choice that is too cheeky for their liking, and this is reflected in El Salvador’s government bonds.
El Salvador’s short-term economy riskier?
So for a week now, the Ley Bitcoin (Bitcoin Law) has been in effect in El Salvador, making the king of cryptos the country’s second legal currency, on par with the US dollar.
While this is a historic moment in the cryptosphere, marking a milestone in the global adoption of Bitcoin and cryptocurrencies, bankers and some international bodies are not looking favorably on the matter, as we’ve already seen with threats from the International Monetary Fund (IMF).
As Bloomberg reports, all these enemies of Bitcoin seem to have gone on the offensive, to put their weight behind the country’s bonds. Indeed, El Salvador’s bond yield curve has inverted, meaning that short-term bonds are yielding more than longer-term debt:
“This is generally considered a bad sign, as it means that investors view short-term debt as riskier, while most [bond] yield curves are trending upward [with the number of years to maturity], given the inherent uncertainty in valuing long-term things.”
An attack that occurred as soon as the Ley Bitcoin was passed
This reversal in the Central American country’s bond yields seems to have started as early as June, when the Bitcoin Law had been passed by the Salvadoran Parliament.
Bond investors seem to be betting against this law and the adoption of Bitcoin in the country’s economy, although other factors may be at play.
The IMF has indeed made good on its threat to withhold a long-awaited loan to the small Central American nation, presumably “to make an example” and to discourage bond investors as well as nations from following El Salvador’s lead.
In any case, neither the drop in BTC prices nor the hostility of the bond market seems to have scratched the enthusiasm of the bold Salvadoran president. Indeed, Nayib Bukele proudly announced that his nation’s treasury had already acquired 550 bitcoins by the evening of September 7 and the establishment of Bitcoin as the country’s legal tender.