With bitcoin suffering yet another drop in price today, the El Salvadoran bitcoin position is now well under water. The current economic outlook is bleak with its five-year credit default swap having more than quadrupled since September, meaning that a default on repayments could be soon.
Bitcoin fell almost another 7% this morning. This comes on the back of a 6.8% fall the previous day. The carrion crows are hovering, and those onlookers from the International Monetary Fund and the World Bank are starting to breathe more easily as they see the first signs that this brave bitcoin experiment might flounder and fail.
The fall in price of the number one cryptocurrency is without doubt mainly due to the Federal Reserve announcement of tightening. A tapering of bond purchases, followed by at least three rate hikes forecast for this year have cast a cloud of suppression over the crypto market.
Steve Hanke, the professor of applied economics at Johns Hopkins University, has been a dogged critic of El Salvador’s bitcoin adoption since the beginning. While showing little understanding of the underlying fundamentals of bitcoin, the economist is on firm ground by being able to predict what will happen if the price should continue to fall.
Hanke was quoted in a Fortune article published today:
"El Salvador now has the most distressed sovereign debt in the world, and it's because of the Bitcoin folly," says Hanke. "The markets think that Bukele's gone mad, and he has."
It should be noted that Hanke had a hand in the original dollarisation of El Salvador back in 2001, and has “counselled” other Latin American governments on the benefits of the dollar, including Ecuador, where he was an advisor to the Ecuadorian finance minister when this country gave up its own currency and accepted the dollar in 2000.
With such a history of trying to propagate the dollar throughout Latin America it’s no small wonder that the professor would be enraged at El Salvador’s daring adoption of bitcoin in the face of severe disapproval across all the pillars of the current fiat financial system.
Yes, it could be argued that the vast majority of the El Salvadoran population might not know much if anything about bitcoin, and should bitcoin continue to fall then the country can be in quite some trouble.
But in the long run this is about freedom from the dollar, freedom from having another country set your main financial agenda. There is much more than just one small country’s fortunes riding on the success or failure of the bitcoin experiment in El Salvador.
The world is looking on, and it remains to be seen whether a failing fiat monetary system will have what it takes to destroy this first green shoot of resistance before it becomes strong enough to blossom and show other countries the path to economic freedom.
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