The most recent crash in the crypto market means El Salvador has lost millions on its purchase of Bitcoin.

During previous crashes, Nayib Bukele has promoted his strategy to “buy the dip.” When Bitcoin previously fell to around $30,000, he bought 500 more coins. I wouldn’t be surprised if he did it again now that Bitcoin has fallen even further (below $23,000 as I write this). For people who believe in Bitcoin, every drop is a buying opportunity.

Among the many concerns about how El Salvador has managed this cryptocurrency experiment is the fact that Bitcoin purchases have allegedly been made by a president who is using his country’s money to trade based on his gut instinct. There isn’t a process within the Central Bank or other institutions to determine when Bitcoin is bought or sold by the state. It’s up to the whim of the president.

Additionally, with that informal process, it’s not clear who controls the keys. In the unlikely event Bukele were removed from office tomorrow, or if he died of a freak accident, or if he had his phone stolen or hacked, what happens to the country’s Bitcoin? If Bukele is replaced by a member of the political opposition, does that president then get to buy and sell on a whim too? Or does Bukele walk away with the Bitcoin under his control? It seems like an almost absurd risk, but it’s one that should be taken seriously. Most countries managing this sort of experiment would have careful processes and a serious backup plan. If El Salvador has a process and/or a plan, they aren’t public.

The El Salvador Bitcoin experiment isn’t just one thing. There are multiple storylines here worth managing separately. One story is that Bitcoin is a legal currency and the country has become a fascinating sandbox for technology innovation by private companies. A second story is that there is a government-built wallet that has many problems of corruption and mismanagement. And there is a third story about “the world’s coolest dictator” gambling the country’s resources while facing no checks on his authority to do so.

Bukele was elected because Salvadorans were tired of corruption. The president then legalized his ability to engage in a mass abuse of public resources while turning it into a spectator sport that we all watch on Twitter. It’s a brilliant power play while it works, but the most likely ending is a tragedy.

Latin America Risk Report

El Salvador - Presidential Crypto