Bitcoin is just the latest in the American tradition of buying snake oil
Tim Rowland
Tim Rowland
The Herald-Mail
Thu, May 19, 2022
The world’s also-ran nations are always looking for an angle, be it as a tax haven, an opaque repository of foreign assets or as home to some oddball tourist attraction, like swallows or sea turtles.
El Salvador, trying to get the jump on other nations, decided it could make a splash on the world scene by being the Bubba of Bitcoin. Whoops. It made a splash all right, the same sort of splash a dead sailor makes when they throw him overboard.
The financially beleaguered nation went all-in on cryptocurrency in September by making Bitcoin its national currency and floating a $1 billion crypto bond.
In other words, El Salvador took its entire economy to Las Vegas and put it on red. And we all know what happened.
Actually, El Salvador is lucky. Bitcoin is only down 50%. Some went entirely down the flume. If you had $1 million in Luna yesterday, today you don’t even have enough to buy a ham sandwich.
Fortune favors the — RUN FOR YOUR LIVES!
What? You mean a financial investment hyped by Mike Tyson and Kim Kardashian turned out to be a sham? No.
Employing someone, who has famously blown through multiple fortunes, as a pitchman for financial planning is, even by American standards, nutty beyond belief.
Normal Ohioans meanwhile have to be breathing a sigh of relief that Republican voters rejected the senatorial candidate who wanted to make the state “pro-God, pro-family, pro-Bitcoin.”
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Because nothing says “family” like rooting around in a dumpster together searching for fish bones. And how you equate God with Bitcoin, I can’t even begin to say. It wasn’t like Jesus cast the money changers out of the temple so he could put his cash into Ethereum.
None of this is unique to the American condition, obviously. In the 19th century, a horse-drawn wagon would roll into dusty backroad communities and talk its citizens into spending their last three cents on Dr. Caldwell’s Syrup Pepsin instead of groceries.
Last century it was penny stocks. You could buy 50,000 shares of Cressen Consolidated Mining and Milling Co., and maybe a year later you would get notice as an official registered shareholder that aforementioned entity was now officially insolvent and had liquidated off its last remaining assets, which at that point amounted to six folding metal chairs and half a jar of Sanka.
Very, very infrequently, one of these companies would turn into Microsoft, at which point the lucky investor would — being all too aware of the odds — stop investing and start selling a correspondence course advertised in the back of Popular Mechanics magazine with a guy in a plaid suit saying, “I made a zillion dollars in penny stocks and you can too!”
Can, but won’t.
And sure enough, there is no shortage of true believers today. You can’t swing a cat without hitting a cryptocurrency, none of which you’ve ever heard of, with names like Tron, ZCash, Tezos, Neo, Dash, Ox and literally thousands of others.
Hey, if it’s your thing, knock yourself out. But most people are going to be reluctant to put their life savings into a global currency cooked up by a kid in his parents’ garage wearing a T-shirt with Taco Bell stains.
I acknowledge these might be brilliant people. But the American monetary system is the one thing the government does really, really well. It dominates the globe. If the goal is to launder drug money or scam senior citizens, it might not be perfect, but if I put a dollar in the bank tonight I know it’s going to be there tomorrow, which is a lot more than you can say for these geniuses who think they can do better.
So if they want to start a revolution, maybe they should focus their talents on something that actually needs fixing, like the health insurance industry or the Department of Motor Vehicles.
BitLicense. That’s something I’d buy into.
Tim Rowland is a Herald-Mail columist.
This article originally appeared on The Herald-Mail: Cryptocurrencies seem to be modern version of penny stocks
Thu, May 19, 2022
The world’s also-ran nations are always looking for an angle, be it as a tax haven, an opaque repository of foreign assets or as home to some oddball tourist attraction, like swallows or sea turtles.
El Salvador, trying to get the jump on other nations, decided it could make a splash on the world scene by being the Bubba of Bitcoin. Whoops. It made a splash all right, the same sort of splash a dead sailor makes when they throw him overboard.
The financially beleaguered nation went all-in on cryptocurrency in September by making Bitcoin its national currency and floating a $1 billion crypto bond.
In other words, El Salvador took its entire economy to Las Vegas and put it on red. And we all know what happened.
Actually, El Salvador is lucky. Bitcoin is only down 50%. Some went entirely down the flume. If you had $1 million in Luna yesterday, today you don’t even have enough to buy a ham sandwich.
Fortune favors the — RUN FOR YOUR LIVES!
What? You mean a financial investment hyped by Mike Tyson and Kim Kardashian turned out to be a sham? No.
Employing someone, who has famously blown through multiple fortunes, as a pitchman for financial planning is, even by American standards, nutty beyond belief.
Normal Ohioans meanwhile have to be breathing a sigh of relief that Republican voters rejected the senatorial candidate who wanted to make the state “pro-God, pro-family, pro-Bitcoin.”
More Tim: When it comes to animals doing what comes natural, let's keep it in perspective
Bob Parasiliti: Time flies, but so has the high school year, leaving memorable markers
Melinda Malott: Go for the green this spring with this easy salad
Because nothing says “family” like rooting around in a dumpster together searching for fish bones. And how you equate God with Bitcoin, I can’t even begin to say. It wasn’t like Jesus cast the money changers out of the temple so he could put his cash into Ethereum.
None of this is unique to the American condition, obviously. In the 19th century, a horse-drawn wagon would roll into dusty backroad communities and talk its citizens into spending their last three cents on Dr. Caldwell’s Syrup Pepsin instead of groceries.
Last century it was penny stocks. You could buy 50,000 shares of Cressen Consolidated Mining and Milling Co., and maybe a year later you would get notice as an official registered shareholder that aforementioned entity was now officially insolvent and had liquidated off its last remaining assets, which at that point amounted to six folding metal chairs and half a jar of Sanka.
Very, very infrequently, one of these companies would turn into Microsoft, at which point the lucky investor would — being all too aware of the odds — stop investing and start selling a correspondence course advertised in the back of Popular Mechanics magazine with a guy in a plaid suit saying, “I made a zillion dollars in penny stocks and you can too!”
Can, but won’t.
And sure enough, there is no shortage of true believers today. You can’t swing a cat without hitting a cryptocurrency, none of which you’ve ever heard of, with names like Tron, ZCash, Tezos, Neo, Dash, Ox and literally thousands of others.
Hey, if it’s your thing, knock yourself out. But most people are going to be reluctant to put their life savings into a global currency cooked up by a kid in his parents’ garage wearing a T-shirt with Taco Bell stains.
I acknowledge these might be brilliant people. But the American monetary system is the one thing the government does really, really well. It dominates the globe. If the goal is to launder drug money or scam senior citizens, it might not be perfect, but if I put a dollar in the bank tonight I know it’s going to be there tomorrow, which is a lot more than you can say for these geniuses who think they can do better.
So if they want to start a revolution, maybe they should focus their talents on something that actually needs fixing, like the health insurance industry or the Department of Motor Vehicles.
BitLicense. That’s something I’d buy into.
Tim Rowland is a Herald-Mail columist.
This article originally appeared on The Herald-Mail: Cryptocurrencies seem to be modern version of penny stocks
Analysis-Crypto crash leaves El Salvador with no easy exit from worsening crisis
FILE PHOTO - El Salvador uses Bitcoin as legal tender
Wed, May 18, 2022,
By Nelson Renteria, Sarah Kinosian and Rodrigo Campos
SAN SALVADOR/NEW YORK (Reuters) - El Salvador's big bet on bitcoin, which the Central American nation has been buying since September, has soured in recent weeks as a cryptocurrency rout shaved over a third of the value of the government's holdings, Reuters calculations show.
Under populist President Nayib Bukele, a vocal cheerleader for the currency, El Salvador went all-in on bitcoin, not just becoming the world's first country to adopt it as a legal tender but also sketching out plans for a volcano-powered crypto mining hub and plans to issue the first sovereign bond linked to the coin.
With global borrowing costs on the rise and a big debt repayment on the horizon, El Salvador has other fiscal headaches than the impact of the currency's swoon. But the crypto slump has also closed some potential off-ramps from the crisis, including the now-postponed bitcoin bond.
"The government's financial problems are not because of bitcoin, but they have gotten worse because of bitcoin," said Ricardo Castaneda, senior economist and country coordinator for El Salvador and Honduras at think tank Central American Institute for Fiscal Studies (ICEFI). For the government, he said, "bitcoin ceased to be a solution and has become part of the problem."
Bitcoin has fallen 45% since El Salvador officially adopted it in early September, and 26% from its May high as crypto assets have been swept up in a risk-off investing environment.
The combined market value of all cryptocurrencies recently fell to $1.2 trillion, less than half of where it was last November, based on data from CoinMarketCap.
El Salvador's debt stood at $24.4 billion as of December, from $19.8 billion at end-2019, after the Bukele administration allocated millions of dollars to deal with the COVID-19 pandemic and its economic effects over the past couple of years.
The International Monetary Fund estimates that the current account deficit for its remittance and external financing-reliant economy will hover near $2 billion through 2025.
But adopting bitcoin set the country at loggerheads with multilateral lenders like the IMF, from which Finance Minister Alejandro Zelaya said https://www.reuters.com/article/us-el-salvador-economy-exclusive/exclusive-el-salvador-seeks-imf-funding-sees-golden-opportunity-for-economy-says-finance-minister-idUSKBN2AW1GV last year the government was seeking $1.3 billion.
The fund has recommended that El Salvador ditch bitcoin altogether. Any deal for a credit line would have to address risks including "those related to the adoption of bitcoin as legal tender as well as risks related to economic governance," an IMF official said on Wednesday.
Ratings agencies have warned bitcoin adoption could facilitate money laundering, and importantly, the bitcoin risk has given bond investors another reason to demand higher returns
As of Wednesday, they were seeking a record-high premium of 2,445 basis points over U.S. Treasuries.
Bukele's moves to centralize power, from removing all the top judges on the country's supreme court to muscling through authorization to seek immediate re-election despite constitutional term limits, have helped drive the risk premium higher.
"If there isn't potential for bitcoin-growth dividends or innovative bitcoin-financing, then the Bukele administration will have to prioritize spending priorities and identify financing options," according to Siobhan Morden, head of Latin America Fixed Income Strategy at Amherst Pierpont.
Reuters calculations of a $36 million paper loss in bitcoin, enough to make at least some of those coupon payments, is based on Bukele's tweets and an estimate of prices on the purchase dates. The government has spent some $104.2 million on 2,301 coins now worth just $67.9 million using Wednesday's volume weighted average price.
The country has to service $329 million in interest due on its international bonds this year as well as $800 million in a bond set to mature in January.
ICEFI's Castaneda listed financing options including the Central American and Latin American development banks - CABEI and CAF, respectively - as possible patches for financing the $800 million payment due in January. Another option, he said, is to nationalize the country's pension fund to cover the fiscal deficit - which could be done by transferring the public's savings to a government account.
A debt restructuring for El Salvador is "inevitable" if the country continues with the "current policy mix," said Polina Kurdyavko, head of emerging markets at BlueBay Asset Management. "Debt in El Salvador could be sustainable with the right (IMF) program. But they have to act now."
The country's finance minister, Zelaya, declined to comment for this story.
Salvadoran bonds trade between 43.5 cents and 34 cents on the dollar except for the January maturity at 75 cents, reflecting cautious optimism that the country could make that payment.
The cost to insure investors against a Salvadoran sovereign default over the next five years on Wednesday hit its highest level since 2020, according to S&P Global data.
(Reporting by Nelson Renteria in San Salvador, Sarah Kinosian in Mexico City and Rodrigo Campos in New York; Additional reporting by Jorgelina do Rosario in London; Editing by Christian Plumb and Matthew Lewis)
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