Bitcoin Investment Losses Snowball in El Salvador, 'Bitcoin Bonds' Also Issued

El Salvador Issues $1 Billion Bond
Bitcoin Loss Estimated at $65 Million
China Explores Foreign Debt Purchase... Attempts to Expand Influence

President Nayib Bukele of El Salvador [Image source=Yonhap News]

[Asia Economy Reporter Lee Ji-eun] El Salvador, which is facing a debt crisis due to concentrated investment in cryptocurrencies such as Bitcoin, announced that it will issue $1 billion (1.3 trillion KRW) worth of Bitcoin bonds. Despite the cryptocurrency asset crash, El Salvador is reportedly expanding its Bitcoin investment scale, raising concerns about an economic crisis. In this situation, as China has proposed to purchase part of El Salvador's external debt, the power struggle between the U.S. and China over El Salvador is expected to intensify.

According to the Wall Street Journal (WSJ) on the 27th (local time), on the 24th, the El Salvador government submitted to the legislature the so-called 'Digital Asset Issuance Act,' which legalizes the issuance of Bitcoin bonds targeting domestic and foreign investors. The bill, spearheaded by President Nayib Bukele, was created for the purpose of issuing $1 billion worth of Bitcoin bonds, known as 'Volcano Bonds.'

The Volcano Bonds are intended to invest about $500 million in the construction of the 'Bitcoin City,' which the El Salvador government previously announced to build as a Bitcoin mining city using geothermal power from volcanic areas, and the remaining $500 million will be used for the government's additional Bitcoin purchases.

El Salvador suffered significant losses from investments in the cryptocurrency market, including Bitcoin, which has been in a slump since the Ukraine war in February this year, but is instead increasing its investment scale. In September last year, Bitcoin was adopted as legal tender, and it is known that the country currently holds about 2,381 Bitcoins using the national budget.

The El Salvador government stated that it has purchased 2,301 Bitcoins in nine rounds so far, with a scale of $105.6 million based on the purchase time, but it is estimated to have incurred a total loss of $65 million from Bitcoin investments as of the 17th. It is known that the investment loss reached 62.5% following the recent FTX exchange incident.

As the financial difficulties deepen, concerns about a power struggle between the U.S. and China are emerging as the Chinese government is reportedly approaching to purchase part of El Salvador's overseas bonds.

According to Bloomberg News, earlier this month, Vice President F?lix Ulloa of El Salvador revealed that China proposed purchasing part of El Salvador's foreign debt. Vice President Ulloa said, "China proposed to buy $21 billion (about 28 trillion KRW) worth of external debt as part of the Free Trade Agreement (FTA), but we need to respond cautiously," adding, "We will not sell all the external debt to the first bidder and will monitor the situation."

Accordingly, there are criticisms that China is trying to economically subordinate El Salvador on the condition of repaying the national debt. According to the Nihon Keizai Shimbun (Nikkei), China has expanded its influence by providing economic support such as infrastructure construction since El Salvador severed diplomatic ties with Taiwan in 2018.

Evan Ellis, a researcher at the U.S. Army Strategic Studies Institute, expressed concern to Nihon Keizai Shimbun, saying, "China's proposal to purchase external debt targets El Salvador's difficult financial situation," and "China is strategically trying to exploit the political instability of the Bukele administration."

This content was produced with the assistance of AI translation services.