El Salvador's bitcoin adoption and its crypto-loving President Nayib Bukele contribute to country's credit downgrade at Fitch
El Salvador flag with bitcoin icons
El Salvador flag with bitcoin icons.

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  • Fitch Ratings downgraded El Salvador’s credit further into junk territory in light of its bitcoin adoption. 
  • The ratings agency also cited an $800 million bond due next year and increased reliance on short-term debt.
  • Moody’s warned last month El Salvador’s default risk would increase if it keeps up its bitcoin buying.

El Salvador received a credit downgrade due in part to its bitcoin adoption and crypto-loving president.

In a Wednesday report, Fitch Ratings cut the Central American country’s credit rating to CCC from B-, putting El Salvador’s debt further into junk, a term referring to a lower-than-investment-grade status.

Besides the country’s crypto adoption, the ratings agency said its downgrade reflects increased reliance on short-term debt, an $800 million bond payment due next January, and limited ability to obtain other financing. 

El Salvador made bitcoin a form of legal tender in September and announced in November it would launch a $1 billion, 10-year bitcoin bond via Blockstream. While the country has grown in popularity for its embrace of bitcoin, ratings agencies have been less enthused.

Fitch’s downgrade follows a similar move from Moody’s last year and a warning last month that the country’s default risk would increase if it keeps up its bitcoin buying spree. President Nayib Bukele, who has been known to buy bitcoin on his phone with public funds, responded on Twitter to say, in a slang term, that the country doesn’t care. 

In its report, Fitch said “weakening of institutions and concentration of power in the presidency have increased policy unpredictability, and the adoption of bitcoin as legal tender has added uncertainty about the potential for an IMF program that would unlock financing for 2022-2023.”

A previous analysis by Bloomberg found El Salvador has about 1,391 bitcoins in its coffers and may have lost an estimated $10 million amid the bitcoin rout this year. As the market slumped in January, Bukele said he “bought the dip,” adding 410 bitcoins to El Salvador’s stash for $15 million. 

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