The Bitcoin Crash Is Taking El Salvador's Big Bet With It

The ongoing crypto crash has managed to wipe out over 50 percent of the value of El Salvador’s Bitcoin hoard.

The Nayib Bukele tracker, named after the country's Bitcoin-obsessed president, records each purchase the country announces, its cost basis, total reserves, and average cost basis of those reserves. Bukele has purchased 2,301 Bitcoins at an average cost of $45,908 and a total cost of $105.6 million. Today, with the price of Bitcoin hovering around $22,000, El Salvador’s reserves have shed 51 percent of their value and are worth $51.6 million.

El Salvador's embrace of Bitcoin has been bombastic, and widely lambasted by critics inside the country and out. Shortly before its most recent purchase on May 9, rating agency Moody’s downgraded the country's debt. Before that, in January, the IMF recommended that El Salvador liquidate its Bitcoin holdings and abandon the cryptocurrency as legal tender, resulting in an angry rebuke from the government: Treasury Minister Alejandro Zelaya saying on local television that "no international organization is going to make us do anything, anything at all.”

A planned Bitcoin bond was going to help finance the construction of the currently unbuilt "Bitcoin City," which Bukele unveiled a gold scale model of last month. Bukele imagines a geothermal city built in the shadow of a volcano that also serves as a tax haven, but details are scant about how any of this would actually be built.

But El Salvador doesn't appear worried. On Monday, Zelaya said at a press conference that Bitcoin's price collapse posed an "extremely minimal" fiscal risk because it represents about half a percentage point of the national general budget.

Bitcoin's largest publicly known holders, which includes El Salvador, have been posting massive on-paper losses amid the ongoing crash. Michael Saylor's MicroStrategy holds 129,218 Bitcoins bought at a cost of nearly $4 billion, but are now worth $2.9 billion (a loss of 26 percent). Saylor has a $205 million loan with Silvergate that was used to buy some of that Bitcoin, which may require a margin call when Bitcoin falls below $21,000 (which it briefly did on Tuesday morning) though the chief executive said MicroStrategy had funds to manage a price decrease to as low as $3,652.

In a February filing with the SEC, Tesla said it bought $1.5 billion worth of the crypto token in 2021 and held nearly $2 billion worth by the year’s end. Bitcoin has declined over 50 percent in that same period, and Tesla's gains were reportedly wiped out as early as May. 

It’s unlikely that the pain will come to an end anytime soon. Other crypto-related companies are bracing for a “crypto winter” with venture capital firm Andressen Horowitz warning that “dark days” were ahead and Coinbase rescinding job offers last week then announcing plans to lay off 18 percent of its staff today (and promptly cutting fired employees access to workplace systems).