Key Takeaways:
- El Salvador’s Bitcoin-based bond plans make 70% in unrealized profits.
- Skepticism toward the crypto strategy remains due to long-term challenges.
- President Bukele’s tough stance against crime and Bitcoin adoption has uplifted El Salvador from its chaotic past.
YEREVAN (CoinChapter.com) — In 2021, El Salvador created history by becoming the first country to recognize Bitcoin (BTC) as a legal tender. Moreover, the country used its domestic bond rally to its advantage by racking almost 70% returns.
It did so much to the surprise of skeptical Wall Street firms.
The El Salvador Bond Rally Bears Fruit
El Salvador’s dollar-issued bonds due in 2027 gained almost 70% in the last six months since El Salvador slowly exited the five-decade-spanning socio-economic turmoil. These impressive returns made previously cautious Wall Street reconsider its approach to El Salvador.
Furthermore, the bonds of El Salvador are among the top performers in the index designed for emerging economies this year. El Salvador’s Emerging Markets Bond Index (EMBI) indicator has decreased by 40%, with the current score at 1,096 points compared to 1,839 in 2022.
So far, according to Zulif Ali, a portfolio manager at PGIM, a global asset management firm, El Salvador has a positive dynamic on its fiscal accounts and is confident in paying its debt to bondholders.
Confidence Rises For El Salvador
Analysts at Wall Street start to acknowledge this feat of success. For example, JPMorgan Chase, Eaton Vance, and PGIM Fixed Income have purchased or recommended to purchase the debt. Moreover, they seemingly anticipate further growth.
More specifically, JPMorgan’s research strategists state that they initially missed the hot spot of the rally. Yet, they still think that there is merit to El Salvadoran economic value. Firms like Lord Abbett & Co LLC, Neuberger Berman Group LLC, and UBS Group AG also jumped on this renewed mood for change.
This rise in confidence stems from the bond’s remarkable performance up to this point and the stabilization of El Salvador in general.
However, Skepticism Remains Still
Nonetheless, some firms remain doubtful and point out that El Salvador faces long-term challenges. They believe the investment space faces risk because of inflexibility and distressing trading levels for bond notes maturing in 2027, 2029, and 2032.
Well, we just paid in full, 800 million dollars plus interest.
But of course, almost nobody is covering the story.
I just found one, yes ONE, in spanish, from Colombia https://t.co/PcRES3poE1
They lie and lie and lie, and when their lies are exposed, they go on silence mode.
— Nayib Bukele (@nayibbukele) January 24, 2023
However, this doubt used to be even more far-reaching. For example, the rating agency Fitch downgraded the debt rating of El Salvador multiple times, expecting a default. However, El Salvador averted this danger of default when its $800 million debt was paid in time.
The Bukele Effect
It is important to recognize that El Salvador would be much different without President Nayib Bukele. His hard-line stance and continuous war on entrenched organized crime have uplifted El Salvador from its miserable state since at least the 2000s.
Today El Salvador builds on our first-mover advantage by passing landmark legislation establishing a legal framework for all digital assets that are not bitcoin. As well as those issued on bitcoin.
The law also paves the way for volcano bonds which we will soon begin issuing.
— The Bitcoin Office (@bitcoinofficesv) January 11, 2023
The destruction of gangs like MS-13 and 18th Street allowed the state and the people of El Salvador to get their balance sheets in check.
Bukele is also known to support Bitcoin and has made its adoption a state policy. Moreover, the latest show for it is the introduction of the so-called “Volcano Bonds.” These Bitcoin-issued bonds will potentially allow El Salvador to pay its sovereign debt further and attract foreign crypto investment.
However, state adoption of Bitcoin cannot come without its risks. The inherent volatility of BTC can create unstable market conditions, which can create problems, especially for emerging economies like El Salvador.
Nonetheless, President Bukele and his people seem confident in their chosen path and don’t plan on backing down. So let’s hope the best for El Salvador, which deserves its peace, not only in the space of traditional finance but in the crypto sector. El Salvador sincerely deserves hope for brighter days after so much tragedy.
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