Bitcoin’s ETF Rally Causes El Salvador’s Bonds to Skyrocket by 62%

Updated: 20 July 2023

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El Salvador’s bonds’ performance surprised investors as they gained 62% in the last six months. The country has found itself better financially since adopting Bitcoin as a payment method. The recent ETF-driven rally caused BTC prices to recover, and El Salvador’s bonds skyrocketed alongside it.

The financial industry participants have an old saying that claims that ratings of traditional agencies are just lagging price indicators. The current situation in El Salvador further confirms this.

El Salvador paid off its debt, contrary to predictions

In September 2022, El Salvador’s debt rating dropped, while the predictions said that a debt default could be expected in January 2023. Since then, the country’s junk-rated bonds have skyrocketed, mirroring Bitcoin’s price action.

The coin saw massive recovery since the start of 2023, and while it is currently struggling to stay above $30k, with a strong resistance at $31k, its price still saw a significant improvement over its performance in 2022.

Similarly, market data shows that El Salvador’s bonds have climbed by 62% in the last six months, currently trading at 72 cents on the dollar.

Bitcoin still outperformed the bonds, as its own price increased by 79%, but that doesn’t change the fact that El Salvador — the first nation to adopt BTC as a payment method — saw strong financial growth thanks to the coin.

While the country’s bonds failed to outperform Bitcoin, they outperformed Invesco Emerging Markets Sovereign Debt ETF, one of the largest holders of the nation’s debt. In January 2023, the country said that it repaid an $800 million bond, which it was supposedly incapable of, according to Moody’s prediction.

The country adopted BTC as legal tender in mid-2021. After that, it started accumulating BTC in September of the same year. By April 2023, El Salvador officially holds 2,546 BTC, according to Bloomberg’s calculations.

The country purchased the coins for $108.2 million. However, due to Bitcoin’s price crash in 2022, the coin’s current value is $76.6 million.

With that said, any recovery would be meaningful for El Salvador, and if Bitcoin outperforms its past ATH in a future rally, the country will even be able to make a profit if it decides to sell.

El Salvador continuously faced criticism for adopting BTC

El Salvador’s decision to adopt and start accumulating Bitcoin was not very well received. The rating agencies kept criticizing it for the move, and the International Monetary Fund did the same.

Last fall, Moody wrote:

Policy differences related to the government’s embrace of bitcoin have lowered the probability that an IMF (International Monetary Fund) deal will be reached in time to address the government’s upcoming January 2023 $800 million bond maturity.

In 2021, S&P criticized the country’s decision, stating that it would have immediate, negative implications.

The IMF added,

Given the legal risks, fiscal fragility and largely speculative nature of crypto markets, the authorities should reconsider their plans to expand government exposures to bitcoin.

However, two years later, El Salvador did not face financial ruin because of Bitcoin, but it is thriving instead.

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