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Fiscal Risk of Bitcoin Crash ‘Extremely Minimal’ Says El Salvador Finance Minister

2 mins
Updated by Geraint Price
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In Brief

  • The Finance Minister of El Salvador downplayed the impact a significant drop in bitcoin’s price could have.
  • "The fiscal risk is extremely minimal," said Finance Minister Alejandro Zelaya.
  • "Forty million dollars does not even represent 0.5% of our national general budget," he added.
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The Finance Minister of El Salvador downplayed the impact a significant drop in bitcoin’s price could have on the Central American nation’s finances.

“When they tell me that the fiscal risk for El Salvador because of bitcoin is really high, the only thing I can do is smile,” said Finance Minister Alejandro Zelaya. “The fiscal risk is extremely minimal.” 

According to an earlier estimate from German broadcaster Deutsche Welle, the bitcoin portfolio of the country has fallen in value by some $40 million. Zelaya’s reaction to the amount was dismissive. “Forty million dollars does not even represent 0.5% of our national general budget,” he said.

El Salvador made bitcoin legal last year

Last year, El Salvador became the first country in the world to legalize bitcoin as legal tender, accepting it alongside the U.S. dollar. Despite the plan drawing flak from international agencies such as the International Monetary Fund, President Nayib Bukele doubled down by putting bitcoin on the country’s balance sheet. 

Amid the downturn in bitcoin’s value, Bukele had continued buying, purchasing the latest amount last month. At that point, the country’s 2,301 bitcoin were valued at $73.7 million. 

Prices tumble 

However, prices have tumbled even further since then, falling to their lowest value since Dec 2020 earlier this week. Since the country’s adoption of bitcoin as legal tender, its value has fallen by some 50%.

On Monday, over 180,000 crypto traders saw their positions liquidated to the tune of $500 million. Some $210.8 million of those liquidations were bitcoin, with another $157.6 million for Ethereum. 

The other big losers were Flamingo with $13 million liquidated, and Solana with $12.7 million.

The “crypto winter” experienced over the past six months by bitcoin and the larger cryptocurrency markets can largely be attributed to the hawkish monetary policy of the U.S. Federal Reserve (Fed), according to the latest CoinShares report

The hawkish rhetoric from the Fed led to consistent daily outflows of digital asset investment products last week, which amounted to $102 million.

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Nicholas Pongratz
Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage.
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