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The three causes for El Salvador’s decreasing creditworthiness as a Bitcoin holder
When El Salvador became Bitcoin legal money in September, the crypto world reacted positively, with many forecasting a turnaround in the debt-ridden country’s fortunes.
Five months later, the country’s sovereign credit is perceived to be four times worse than it was.
According to Bloomberg statistics supplied with CoinDesk by Marc Ostwald, the chief economist and global strategist at ADM Investor Services International, El Salvador’s five-year credit default swap (CDS) has more than doubled to $1,800 since early September (ADMISI). Credit default swaps calculate the cost of insuring against a country failing on loan repayments at any moment during a given period.
“Salvador’s CDS is warning you that a default is coming at some time,” said Charlie Morris, CIO of ByteTree Asset Management. The country’s CDS was the second highest in Latin America as of Wednesday, trailing only Argentina.
While numerous traditional market experts pointed to El Salvador’s ostensibly utopian decision to accept bitcoin as legal cash and invest in the top cryptocurrency as the cause of the country’s CDS jump, the US Federal Reserve’s hawkish attitude appears to have had a part as well.
