Important points
- El Salvador made record BTC purchases despite a sharp market decline and IMF lending restrictions.
- The government may be using a technical workaround to continue purchasing without using finance department funds.
- Supporters praise the long-term strategy, while critics warn of fiscal risks and complicated transparency.
El Salvador made the largest Bitcoin purchase in history. The country purchased about 1,090 BTC, worth about $100 million, in one day. The purchase comes as Bitcoin prices have fallen to their lowest levels in recent months.
As a result, El Salvador’s total Bitcoin holdings are approximately 7,475 BTC. At today’s prices, that would be worth more than $670 million. President Nayib Bukele celebrated the news by posting a screenshot on social media and writing: “Wow!”
Bitcoin has fallen sharply recently. Amid nervousness in the world market, there were times when prices fell below $90,000. Many short-term investors sold their coins at a loss, and billions of dollars of leveraged positions were liquidated.
However, El Salvador decided to buy rather than sell. This continues Bukele’s strategy of buying 1 Bitcoin every day. He launched this policy in November 2022 and has continued it whether market conditions are good or bad.
Some analysts praised El Salvador’s efforts to buy Bitcoin during a market downturn. Supporters believe the country will benefit if Bitcoin prices recover in the future. However, no one knows whether this long-term strategy will be successful.
The purchase raised new questions, particularly regarding the agreement with the International Monetary Fund (IMF). El Salvador has a $1.4 billion loan agreement with the IMF. As part of the agreement, the government will halt new Bitcoin purchases using public funds.
Related article: El Salvador continues to purchase Bitcoin despite IMF agreement
Because of this, there are mixed messages about what is actually going on. President Bukele said in March that the country would continue purchasing Bitcoin. However, some believe that there have been no new BTC purchases since February.
The IMF has also suggested that the increase in holdings could simply result from the movement of Bitcoin between government wallets, rather than from more purchases on the open market.
However, Stacey Herbert of the Bitcoin Office of El Salvador strongly disagrees. she said this “Some ‘Bitcoiners’ trust the IMF’s word on El Salvador’s actions being permanently recorded on the Bitcoin blockchain.”
The IMF may revisit the situation in the future, but it is unclear whether anything will happen as a result. Some analysts believe El Salvador is creative.
The country may continue to use legal and financial techniques to accumulate Bitcoin without formally violating its agreement with the IMF. Critics say the government is undermining the spirit of the deal, while supporters say the government is just creatively following the rules.
Since the IMF restrictions apply to the government’s core budget (funds from taxes, government bonds, and international loans), El Salvador has structured its Bitcoin purchases in a way that avoids the use of these “fiscal sector” funds.
El Salvador became the first country in the world to issue Bitcoin fiat currency in 2021. The government launched a national Bitcoin wallet, offered incentives to users, and proposed ideas like Bitcoin bonds and a “Bitcoin City.”
The Latin American country then scaled back its Bitcoin efforts after reaching an agreement with the IMF. These include reducing engagement with Chivo wallets and making merchant acceptance of Bitcoin optional.
Critics warn that this strategy is risky because Bitcoin’s price often changes rapidly. Due to the recent price drop, El Salvador’s Bitcoin holdings have fallen by nearly $200 million from their all-time high.
However, the government continues to say this is a long-term plan. President Bukele believes that the goal is not just financial, but rather something closer to reform.
