Investment

Investors speculate that El Salvador may not pay its obligations in January is misguided

In January, speculation has grown over El Salvador’s ability to pay its financial obligations. These rumors arose when El Salvador purchased more BTC after the latest market meltdown.

El Salvador is claiming that it will not pay its obligations

There have been recurring concerns that El Salvador, a country in Central America, may be unable to satisfy its next financial commitments. El Salvador made Bitcoin (BTC) legal money and began utilizing it officially around September last year.

At that moment, Bukele began buying a large amount of BTC throughout the subsequent drops. While BTC continues to fall, Nayib Bukele maintains his position and buys other dips.

Nonetheless, several Salvadorans and non-Salvadorans began to fret about the country’s ability to pay its upcoming bills. This follows previous occurrences in BTC, which resulted in huge price drops. BTC, for example, is currently selling at less than half of its all-time high of $68,000. In addition, government-issued shares sell at 40% of their actual worth since BTC has lost more than 50% of its value.

The idea of volatility is faulty since BTC always rebounds

Many credit rating agencies cautioned El Salvador about the volatility of Bitcoin when it initially entered the market. According to Fitch Ratings, bitcoin’s widespread acceptance has been hampered by its intrinsic price volatility, poor financial inclusion in the local banking system, and a lack of widespread internet access.

Many credit rating organizations lowered El Salvador’s credit rating, requiring them to repay with huge interest. According to the IMF, El Salvador is vulnerable to volatility risks, which was intended to assist the government in repaying its debt by January 2023. As a result, the IMF is unlikely to assist El Salvador in repaying its debts.

The price drops in BTC, particularly during the Covid epidemic, the Ukraine war, and climate change, influenced many analysts’ opinions on debt repayment. This reasoning, however, is entirely wrong.

While BTC is extremely volatile during market turmoil, it generally rebounds. Although many believe El Salvador will default on its debt commitments, BTC will very certainly recapture its ATH, maybe even sooner.

While Bitcoin is unpredictable, paper money has an even more serious problem with market volatility. For example, Salvadoran money printers would easily overprint money with extreme situations such as covid increasing again, the Ukraine conflict, and climate change all occurring in the following 30 days. It is now the situation with the USD, causing the Feds to raise interest rates to contain the USD’s loss of inflation.

Unlike Bitcoin, which always recovers in a few weeks or months, paper money loses value dramatically and takes years to recover. El Salvador will be able to repay its obligations in the coming months after Bitcoin regains its value.

Other countries have already begun to embrace cryptocurrency

The decision of El Salvador to legalize BTC prompted other nations to follow suit. The Central African Republic’s parliament just enacted a measure that allows BTC to be used as legal money.

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