The Washington PostDemocracy Dies in Darkness

Nayib Bukele trades bitcoin naked. El Salvador is paying the price.

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Beware of naked millennial presidents bearing bitcoin.

El Salvador, economists say, is learning that lesson the hard way. President Nayib Bukele — who dropped the mic this month on Twitter by claiming he trades his country’s cash for bitcoin on his phone while “naked” — oversaw the cryptocurrency’s adoption as legal tender 3½ months ago. Since then, its plunging value, the vice president of Moody’s credit-rating agency estimates, has cost the national treasury up to $22 million worth of precious reserves. The country’s bonds have tanked. Fears of diminished financial transparency, meanwhile, have stalled a vital loan deal with the International Monetary Fund, which urged El Salvador on Tuesday to drop bitcoin as legal tender.

“El Salvador now has the most distressed sovereign debt in the world, and it’s because of the bitcoin folly,” economist Steve Hanke told Fortune. “The markets think that Bukele’s gone mad, and he has.”

The 40-year-old bad boy of Latin American politics who favors backward baseball caps and cool-dude shades pitched the cryptocurrency last year as a companion to the U.S. dollar, which entered use as El Salvador’s national coin in 2001. The digitally mined bitcoin would be a great economic equalizer, he pledged, freeing his remittance-dependent people from the yoke of high transfer fees while helping poor Salvadorans without bank accounts access financial services for the first time.

When Bukele dreams, he dreams big. Back in November, when bitcoin was nearly twice its current value of about $36,000 a pop, Bukele announced a $1 billion “bitcoin bond” to build a new, tax-free city in the shadow of the Conchagua volcano. Powered by geothermal energy from the mountain, the circular, bitcoin-shaped urbanization would be blessed with modern towers, bars, restaurants, a railway and its own airport — presumably in part to accommodate the private jets of high-rolling crypto investors.

Jaime Reusche, vice president at Moody’s, told me that Bukele, a former advertising executive, is still targeting a bitcoin bond offering for February or March. If he finds any takers, the plan is to use half the funds to build the city and the other half to invest in bitcoin, profits from which could be shared with investors later, Reusche said.

“It makes very little sense,” Reusche told me. “If investors wanted exposure to bitcoin, they should simply buy bitcoin, not El Salvador’s risk.”

The bitcoin foray has proved costly for El Salvador — gambling the country’s treasury reserves on an erratic and exotic instrument while upending an International Monetary Fund deal with concerns that cryptocurrencies make it harder to trace money laundering and corruption, Reusche said.

“We estimate the country has lost between $10 million and $22 million,” Reusche told me. “To lose money on treasury deposits is fairly unprecedented, unless you’re talking about gross economic mismanagement.”

Players including American mayors and the Venezuelan and Iranian governments have jumped on the crypto bandwagon in bids to appear forward-leaning, lure jobs, gamble on returns and, in the case of rogue states, sidestep sanctions and hide money trails. But no one has taken the leap Bukele has.

Skeptical Salvadorans gained access to bitcoin though a state-run digital wallet called “Chivo” — local slang for “cool” — as well as branded ATMs. But, as Fortune’s Shawn Tully reported, Salvadorans found that accessing remittances in bitcoin “is shockingly costly — on both ends of the transaction.” Crypto exchanges charge the sender commissions of 2 to 4 percent for changing dollars for bitcoin. When deposits digitally land in a Chivo wallet, Salvadorans — many of whom don’t want to hold bitcoin — end up going to an ATM, where they can convert withdrawals to dollars. The ATM provider takes another 5 percent cut. In total, fees can run between 7 and 9.5 percent, and potentially higher.

“Over 80 percent of the people surveyed by the El Salvador Chamber of Commerce said that they don’t want remittances in bitcoin, and over nine in 10 rejected the idea of taking their salaries in coins,” Tully wrote.

Is the crypto crash of recent days cause for reassessment? Not for Bukele, who this week bragged of spending another $15 million in reserves from one of the Western Hemisphere’s poorest nations to scoop up 410 more bitcoin.

“Some guys are selling really cheap,” Bukele tweeted in English, punctuated by an emoji shrug.

One thing at which Bukele has succeeded: turning the president of a gang-plagued Central American country into the world’s most unlikely tech bro. He has mastered the art of Trumpian entertainment, building an online persona that is part bearded crypto-king, part smart-mouthed celebrity and part old-school Latin American populist.

On Twitter, he can whip up a storm faster than Mother Nature, in both Spanish and English. He drops f-bombs and has dubbed himself the “CEO of El Salvador.” Last week, he tried out his tweeting skills in Turkish, timed to pal around with perhaps the only other world leader who can match his economic quixotism: Turkish President Recep Tayyip Erdogan, whose quest for low interest rates has run the lira into the ground.

Playing social media like a virtuoso, Bukele this week tweeted a doctored image of himself wearing a McDonald’s uniform, joining a running joke among cybercurrency investors over “next jobs” should the bitcoin bust sink their careers.

His advice to those working the grill at the Golden Arches?

“Invest a piece of your McDonald’s paycheck in #bitcoin,” he tweeted. “Now go back to flip more burgers you lazy f---!”

Will Bukele get the last laugh? The jury is out. He has enjoyed rock-star-level public approval at home, especially as the overall economy rebounded last year after a pandemic-related recession in 2020. And his initial embrace of bitcoin made him a blockchain hero.

Jack Mallers, founder of the bitcoin payment platform Strike, who helped write the Salvadoran legislation that made the cryptocurrency legal tender, introduced Bukele’s video address at a Miami crypto conference last June wearing an El Salvador soccer jersey — a gift from Bukele he called “pretty sick,” my colleagues reported.

Some people — especially those who stand to profit off Bukele’s bitcoin bet — still hold the Salvadoran leader up as the kind of monetary renegade that crypto aficionados need in national office. But more Bukele skepticism appears to be creeping into the crypto world.

Bukele, dubbed “Latin America’s First Millennial Dictator” by Slate, and his backers have moved to replace constitutional judges to pave the way for his reelection bid; he has locked horns with the free press and deployed troops to congress to back a crime bill. Some see his assault on checks and balances and the rule of law as more the deeds of a traditional Latin American authoritarian than those of a cutting edge, tech-forward wunderkind.

“While Bukele’s move to adopt bitcoin as an alternative to the U.S. dollar in El Salvador has great potential for freeing the developing world from the yoke of the global financial establishment, his authoritarian behavior here is anathema to the cyber-libertarian ideals that underpin cryptocurrency,” David Z. Morris wrote for crypto news outlet CoinDesk.

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