After and due to their failed attempt to raise a "Bitcoin bond," the market doesn't believe in the government. Their non-Bitcoin based sovereign debt is now trading at 30 cents on the dollar, down from 94 cents on the dollar last March. [1] This makes it all but impossible for them to raise more sovereign debt on the capital markets.
I don't think it's the price of Bitcoin so much as their going all-in on it and then seeing their gamble collapse out from under them. They've now lost money on all the "dip buys" their dictator was tweeting about - in English only - to show off to the laser-eyed.
Their issue is that they showed such poor judgement.
[edit] Further, of course, they're thumbing their nose at the IMF by refusing to roll back BTC-as-tender. No matter what you think of that demand or that policy decision, if the IMF is the only one lined up to bail you out, it's their way or the high way.
the bitcoin bond was worse than the existing el salvador bonds in all ways.
I.e. you could have bought a normal bond and bitcoin spending the same amount of money and having strictly better returns in all circumstances.
And reportedly, nobody bought them[0].
I am not sure that emission scared investors, if anything, had someone showed up to buy them, it would have been free money fo the government.
That may be one factor, but not the only one. Someone had made graph of the bond prices and added the dates of some government actions and announcements. I'll try to post it below if I find it.
Salvadoran bonds reached their all time high after the Elections in March 2021, because investors expected stability with an officialist majority party in the local congress.
On the first session though. One of the first things the congress did was to change the Supreme Court and the Attorney General.
Did I say all that happened in just two hours, live, in a HD televised session with what I believe scripted dialogs. They even had crane cameras and rail cameras for cinematic effect.
Hard to explain. Just imagine C-SPAN turning from C-SPAN into a reality-show-contest production style. Laws (including your legal tender) being approved in 2 hours with no previous announcements. Sometimes at midnight too.
And let me get to the part when the interpretation of laws can change with a government's official tweet or tv appearance. Yes. Sometimes more than once a day. And sometimes the interpreted law being the opposite of the written law. Sometimes in a foreign language. Really. :)
Imagine living in a reality show where every major change in the plot is announced on Sunday at primetime. Except the reality show is your country. :)
Those changes started worrying bond investors. Many other things, good and bad, have happened ever since, too long to type in a comment.
In less than a year. The 2052 bonds went from an all time high to an all time low. [1]
> Did I say all that happened in just two hours, live, in a HD televised session with what I believe scripted dialogs. They even had crane cameras and rail cameras for cinematic effect.
It was a way to get around bond regulations, the bond is a wrapper around Bitcoin. It’s similar to how some companies buy MSTR because they are not allowed to buy Bitcoin directly, but want some exposure.
A pension fund might very well be allowed to buy junk bonds since it is a well-known if risky instrument whereas bitcoin ETFs are a newfangled weird instrument that is probably not covered by their guidelines.
I mean allowed in the sense that the investment guidelines set by the board allow it.
Source: I work at a pension fund where I think we are in precisely this situation.
I think in the next few years the pressure for junk bonds like this in pension funds will just grow as inflation rate moves farther away from bond yields.
You are correct that at the time of announcement, if you had believed in Bitcoin and El Salvador (for some reason) it would have been advantageous to simply buy - separately - Salvadoran sovereign debt on the capital markets and Bitcoin on the spot markets.
Did he persecute people like Pinochet did? Calling him a dictator is like having someone saying that misgendering them caused them PTSD: it is putting war induced trauma in the same bag as whatever misgendering is.
"Persecuting people like Pinochet" isn't really the bar.
I was alluding to the time he brought the military into the legislature to force through his 'crime package.' [1]
Belorussian leader Alexander Lukashenko refers to himself as the "last dictator in Europe" and I don't think he "persecutes people like Pinochet." He was also elected.
I have no idea who exactly is or isn't a dictator, but there is a Spanish word for the situation when a democratically or legally elected leader acquires dictatorial powers by breaking down institutions: it's called an "autogolpe" or self-coup.
I realize it happens outside of Central and South America, but it's suggestive that there's a specific word.
If you loan someone $100 and then find him going to vegas each weekend gambling $5 and spending the entire week boasting about what a genius he is and showing off his photos with his gambling friends, you will feel very uncomfortable loaning him more, even though his gambling habits are incrementally consuming a small portion of the loan you gave him.
> you will feel very uncomfortable loaning him more, even though his gambling habits are incrementally consuming a small portion of the loan you gave him.
So you are irrational and want to punish your client because of what hobby they pursue in their private/free time.
If their hobby is expensive enough to have an impact, then it does concern you, but if it is just "$5$" then it is none of your business if they spend it on ice cream, a gym or gambling.
You are taking the analogy too literally. Lending to a country/corporation is different to lending to a person. There is no such a thing as "free time" for a country. If the president wants to gamble his own wealth on bitcoin this is absolutely fine.
Further, you would be punishing him if he renounced his gambling addiction, but if he is still convinced that his gambling adventures is the right course of action to preserve and create wealth for his country then withholding fund is actually for his benefit.
> Lending to a country/corporation is different to lending to a person
> If the president wants to gamble his own wealth on bitcoin this is absolutely fine.
So, how would you fix El Salvador and give their people the best chance at a good life?
A lot of the anti-crypto sentiment on HN portrayed El Salvador's actions as a very bad and irresponsible move, but I'd say that the President of El Salvador is not only making the right move for his country, but personally has far more skin in the game than any democratically elected leader from most other countries. If his move doesn't work out in the long-run, he will likely eventually be violently removed from office. Hell, he risks assassination from other countries too merely for "stepping out of his lane", so to speak.
Why is it the right move for his country? How much of a gamble is any action when you don't have much to lose?
I don't want to disparage El Salvadoran people in any way: but the reality is that they're a very poor country with a very bad education system and not much industry and have had major crime problems, and many of their people who build up some success and resources in life still see their best path to success as finding a way to get into other countries. Their only real path out of this situation is either humanity inventing free energy and replicators to give them unlimited resources, or them taking a shot at being a friendly jurisdiction for the next major industry and technology before everybody else truly embraces it.
They're like a small-market NBA team with no real chance of winning a title without tanking. Everybody is going to rip them for tanking, but that's their only real path to win.
El Salvador is now in a non-zero position to be a wealthier country in the long run. That's much better than the basically 0 percent chance they had before their crypto actions.
What does a President having "skin in the game" mean? That is the kind of talk you would make when talking about an investment. From the perspective of a sovereign nation, it's currency is not an investment. The goal of a currency isn't to provide maximum returns for people who hold that currency. In fact, from the perspective of a sovereign nation, an ideal currency is one that depreciates in value in a controlled manner. The fact that cryptocons don't even understand this simple fact is remarkable.
The NBA is a zero sum organization. There can only be 1 winner, and everyone else will be a loser. 1 team getting better than the others strictly means that the other teams are worse off. Nations and the world economy do not operate in a zero sum environment. Ukraine being attacked by Russia means nearly every country that relies on its produce and output are worse off. This is unlike the NBA where if suddenly every player in the Warrior's lineup got injured today, every other team would have a better chance of winning.
> 0 percent chance they had before their crypto actions.
Citation needed really really badly. There's a million things countries can do to improve their wealth. The one thing that is not gonna help them is investing in a speculative and highly volatile asset like crypto currencies.
> How much of a gamble is any action when you don't have much to lose?
As a Salvadoran it really hurts to read you describing everything we have there "not much to lose".
I mean. We are in the middle of most statistics in the world. It's not like we are in the bottom for everything. Perhaps crime, but that's been improving for the past 5 years.
1) Reality is not always pleasant or politically correct. It is not my desire to be insulting, but at the same time, it's hard to have a discussion about real world events and and not say some things that some people might prefer not to hear. Some feelings might be hurt, but the world would be better off if more frank discussions were had.
2) If I understand this right, a short time ago in this very thread, you posted that El Salvador lost Visa Free Travel to the UK due to 17x increase in asylum requests. Again, I'm not trying to be insulting, but that's the kind of data point that tells a lot of the story about the state and direction of a country.
3) Let me add that I genuinely want El Salvador to do well: it's in your country's and my own best interest.
4) Nobody can 100% predict the future, but I think your president has given your people the absolute best chance they have at prospering, even if it will take some time to materialize. Even if Bitcoin never truly moons, establishing your country as a crypto friendly jurisdiction seems like a far-sighted move that most people won't really understand the long-term benefits until a long time later.
5) I'm sure you understand El Salvador far better than most people. If I've said any facts you think are incorrect, I always invite correction or clarification. I'd definitely be interested on what specific things you think your country can do to improve the long-term outlook other than providing generic platitudes about doing better in crime or education.
> Let me add that I genuinely want El Salvador to do well: it's in your country's and my own best interest.
Me too.
> Establishing your country as a crypto friendly jurisdiction seems like a far-sighted move that most people won't really understand the long-term benefits until a long time later.
I don't work directly with law, but El Salvador is becoming an an increasingly complicated jurisdiction to work in.
There have been more than a handful contradictions between written law, tweets, and government official declarations.
Doing business, in a country with conflicting interpretations of law is complicated, wether plain old business or crypto.
Laws changing on Sunday evenings, optimized for social media engagement instead of business hours. Or laws coming onto force before they are officially published.
Tweets or government official declarations used as an official 'interpretation' of law. Sometimes the interpretation being close to the opposite of what the law states. Who to believe? The interview, the tweet, the written law, the supreme court?
This confusion permeates everything. From complex stuff:
Like for the past months, a big pension reform has been announced. No drafts available of course. Will the individual pension accounts be nationalized? (Equivalent to the US IRA/401k/Employer contributions) There's no public info about that.
To the day to day stuff:
If the police detains someone and posts their picture on and convicts you for 20 years in prison in twitter. Is the tweet a valid conviction or not? I don't know. Judgement via social media?
Can police stop someone and check their phone? Yes
Have people been sent to prison for not carrying a phone? Yes
Have people been sent to prison for a 20 second TikTok video using the 'wrong' background song? Yes.
Can a business be taken over by the government? Yes, it happened at least once. It didn't even follow a normal law process and was a very confusing procedure with conflicting official declarations.
Can the police force the door open while a couple is in a 'love hotel' with your gf/bf and post their picture in social media, in underwear, your car, license plate, or your ID card? It has happened before too. Security checks.
Will having the wrong local rap song in the Spotify history send someone to prison? Probably.
Thanks for sharing. I can see some of this stuff unfortunately being true, but some of it sounds pretty ridiculous and I'd guess might be embellished a little.
That being said, is some of this justice system stuff being worked on? I think your president was focusing on crime issues in addition to the crypto stuff, but I don't really follow all of the El Salvador news too closely.
The interpretation being close to the opposite of what the law states, for example the reinterpretation of the constitution regarding consecutive reelection:
The point of analogy is that it's very different from the actual issue. In fact, an analogy will always be different from the real situation, otherwise it wouldn't be an analogy, it would be the thing in itself.
There is nothing contradictory in using an analogy to illustrate a specific point (in this case, how a lender may be hesitant to lend something to a borrower even if the borrower acted unwisely with a small part of the money that was lent to them), and pointing out that the analogy is not the same as the actual situation.
Yes, I'm aware of all that. But when you pick an analogy, you should pick one that helps your case, not where the central dynamics are opposite from or incomparable to the dynamic you're trying to illustrate.
If you don't believe that loaning to a human is analogous to loaning to a country, you really shouldn't be the one introducing it as an analogy!
The purpose of an analogy is to more clearly convey a dynamic, not muddle understanding by reference to a case with the opposite implications.
In the likely event that it still isn't clear what's wrong with ak_111's points, let's review.
"People are obviously going to be reluctant to lend to <country> because <country> is behaving like a human who spent his money frivolously after borrowing your money again. Because you would not continue to lend to that human, you can see why others would not lend to <country>."
"Okay, you misunderstood my analogy. You can't conclude anything about countries based on how you would handle a human. The situations are completely unrelated, to the point that it is impossible to reason about one from knowledge of the other."
Am I the one who doesn't understand analogies, or is ak_111?
>> ...the government had purchased nearly $25 million worth of bitcoin...
> Dont think the losing of bitcoin value can be blamed in case of default
Volatility makes it difficult to represent the true economic impact of this situation. From scarce and needlessly secret information, their bitcoin holdings were worth over $100M earlier this year[0], a consequential portion of the repayment. More importantly, while they have historically claimed that they would always “buy the dip”, there is no indication of when they sold, and a few indications that they have turned a loss on the investment so far.
Meanwhile, the payments are due at fixed periods, which may force them to sell unfavourably. A year after the 2018 high, it was at a fourth of its high value. What they now consider “dips” may well be seen as highs then.
Plus, their policies have an effect on the rest. In short, they don’t have a strong case on finding financing apart from their crypto bet[1]:
> The downgrade of El Salvador's rating is driven in good part by the lack of a credible financing plan
which they would need, to cover their worsening position[2]:
> The government faces only USD305 million in external debt amortizations in 2022, but faces close to USD1.2 billion in 2023
> El Salvador will likely face a funding gap of about 1% of GDP
Bukele showed up in the latter stages of a bull market and thought he was a genius that had discovered a money making machine. Just like Saylor and Elon. It happens every cycle. They will all be tested. No one gets through the door easily. The genius was ignoring recency bias and buying BTC at the bottom at 3k in 2018 and selling your coins to Elon last year.
The amount Bukele bought is tiny. Bitcoin and crypto are a threat to the IMF system. They aren’t going to like it when you do that. To survive without the IMF, you would have to go all in at a generational bottom. That did not happen.
> Bitcoin and crypto are a threat to the IMF system. They aren’t going to like it when you do that. To survive without the IMF, you would have to go all in at a generational bottom. That did not happen.
In the large scale, El Salvador's BTC fund is not that big.
I mean, El Salvador has more IMF shares than Bitcoins in their fund.
- El Salvador Bitcoin: 74 million USD [2]
- El Salvador IMF shares: 402 million USD (207 million SDRs) [1]
> Bitcoin and crypto are a threat to the IMF system. They aren’t going to like it when you do that. To survive without the IMF, you would have to go all in at a generational bottom. That did not happen.
I see this conspiracy theory thrown somewhat often, but it has the same substance than any qanon-type "they" story.
Meanwhile, supporters of this conspiracy theory fail to explain why adopting a highly volatile and manipulation-prone asset as a nation's legal tender is not a completely brain-dead belief, as it fails any of the basic properties of money.
Another detail that btc conspiracy theorists fail to mention is how every single concern expressed by the IMF regarding El Salvador's Bitcoin push was already proven right.
But crypto-bros hand-wave around the subject and it never ceases to be fool-proof.
A 2% speculative investment in an emerging technology is a drop in the bucket compared to what El Salvador has been through in the past 30 years, with multiple past presidents arrested or fleeing the country following corruption charges.
By multiple verifiable metrics(homicide rate, covid response, gdp growth) El Salvador is in a far better place now than it's been in decades.
> For perspective, the previous president of El Salvador is in exile for his alleged role in the embezzlement of $300+ million.
All of those cases were discovered and judged thanks to:
a) The separation of the Executive/Legislative/Judicial powers
b) The Public Access Information Law.
c) The help of independent journalism
I don't agree with removing the checks and balances that helped discovered these cases in the first place.
The first two a) and b) have been dismantled by the current administration in the past year.
The third, c), independent journalism, is constantly under attack from government and allied media outlets and influencers.
Just a couple of weeks ago, the Head of Congress told the independent press "to go away". This happened live, on the podium, while presiding a session.
Quoting what the Head of Congress said:
"Ask for asylum. Get asylum and go way Go away. You don't contribute anything here.... We don't need you. Go away. "
> A 2% speculative investment in an emerging technology is a drop in the bucket compared to what El Salvador has been through in the past 30 years, with multiple past presidents arrested or fleeing the country following corruption charges.
That's an extremely generous and charitable interpretation.
El Salvador's investment in btc is hardly relevant with regards to it's nominal cost. It is however significant in the impact it has on El Salvador being able to refinance it's sovereign debt and earn trust in the country's institutions.
Trying to argue that today's sad state of affairs is not that bad because some point in the past the state of affairs was also sad is not a path forward.
Please, the phrasing is obviously meant to make the reader jump to conclusions.
The headline wasn't "El Salvador expected to default as Hacker News readers bicker about wording", even if that would have been equally true (and relevant?).
i know this will get downvoted heavily, but considering how rapidly fiat currencies are loosing value, I'd say the investment in bitcoin is an excellent long term bet and even by jan 2023, likely to look good. history will judge.
How do you figure? The price of gold today in USD is up 4.4% of where it was from the highs 10 years ago. That's not indicative of a fiat currency rapidly losing value.
If you consider the price of gold today vs. where it was at its lowest point over the previous 10 years (USD had most value, just before Trump took office) then gold has gone up 42.76% (meaning the USD has lost considerable value since 2016). You can look at the charts and see when the trade war started with China and see when the Pandemic hit. Even so, since Biden has been in office the USD has been gaining in value (as measured by gold) and given the action of the Fed last week it will gain even more value (in fact that's been the financial news the past few weeks - the USD gaining value). Again this doesn't support the claim that fiat currencies are rapidly losing value.
i calculated the average increase of roughly 7%-8% for the last 20 years, according to the site you mentioned (+490% over 20 years). And, you look at inflation of almost anything from housing to gas, most of it averaged 4-4.5%. We hardly need a basket of goods to average across anymore since most of people's earning now go to housing, at least for the latest generation. Case shiller shows housing was already going up at 4% per year on average for the last 20 years, and that was before the pandemic. So, yeah, the dollar and all the other fiats, for the last 20 years have been crashing at least 4% per year. and the CPI, as it was calculating using the older methods (before congress told them to start under-reporting inflation) can confirm this. You can find out all about this on http://www.shadowstats.com/alternate_data/inflation-charts if you read all the foot notes you can find out inflation measurements have changed in order to under report it.
So, we had at least 4% pre pandemic and now closer to 10-11% (real CPI as reported on shadowstats, is always about 2% higher than the fake BLS numbers) per year though it looks like it will diminish.
So, yeah, the dollar and all the other fiats, for the last 20 years have been crashing at least 4% per year.
That's not a crash, that's more-or-less by design. Currency, i.e. money, is engineered to be inflationary and economists consider the optimum inflation rate to be 2%-4% per year. For the past 20 years we've been on the high side of that target, but we're on target. Inflationary currency encourages investment and spending. Saving currency in the bank is not producing value (there's even a parable about this).
there's already a vast oversupply of investment money chasing far too few opportunities: take a look at the s&p500, it's only returning 1.3% dividends. that tells you PE ratios are through the roof and that there's too much capital chasing too few opportunities. so, there's no need to "encourage investment and spending".
Society would have a lot to gain from a government that didn't default on it's obligation of "money as a store of value". there's a large need for store of value, especially with the aging population.
Money is most emphatically not a store of value and hasn't been in over 100 years nor do you want it to be. Hoarded money has little value to an economy. What you want money to do is be used to build or expand manufacturing, build or expand shipping infrastructure, communications infrastructure, expand agriculture, and so forth and so on. "Investment" is a much broader term than just buying equities. Do something with your money! As I said, there's even a parable about this.
Dont think the losing of bitcoin value can be blamed in case of default