El Salvador at risk of sovereign debt default as crypto market slumps

Last week, the entire encryption circle should be paying attention to the results of the death spiral of LUNA and UST and the impact on the entire encryption market, hoping that Do Kwon’s self-help plan can bring about some improvement, although the saying goes “Hold on, don’t die before dawn However, Luna has fallen by 100% from its historical high of US$119 to US$0.0{5}7. Some users who have followed suit and tried to buy the bottom, but have experienced multiple losses, may not be able to wait until dawn for their losses, and eventually become A stepping stone for other holders to escape and arbitrage.

It can be seen that although the price of LUNA has plunged all the way without hesitation, the market value has only dropped from 300 million US dollars to 200 million US dollars. In the process, 800 million USTs still flowed out, which were used to cast a large number of LUNAs; the price trended rapidly The market value is close to 0, but there is no corresponding decline rate, indicating that a large number of users in the encryption market have participated in bottom-hunting operations. Of course, part of the impact of Terra’s self-rescue plan cannot be ruled out.

The death spiral of LUNA and UST almost repeats the history of last year’s algorithmic stablecoin TITAN/IRON. The lower the price, the more additional issuances, and the more people participate, the faster the death, bringing the entire encryption market to the bottom, in just a few days Absorbed hundreds of billions of market value in the entire encryption market.

So far, many parties in the crypto market are looking for ways to try to stop losses and contain damage as much as possible. Terra officially issued a document stating that the Terra blockchain has been suspended at block height 7603700. Terra validators have decided to halt the Terra chain to prevent governance attacks following LUNA's severe inflation and significantly reduced attack costs.

We have also seen that Binance, Upbit and other platforms have also made some restrictions on LUNA, such as delisting, closing trading pairs, and censorship. They not only limit the expansion of the scope of the collapse as much as possible, but also protect some LUNA in disguise. Retail investors who are bottom-hunters, after all, there is still a large amount of UST that has not had time to flow out. Vitalik Buterin, the founder of Ethereum , agreed with Terra Fund’s plan to give priority to compensation for small holders of UST. In this plan, small holders are given priority in compensation, allowing 99.6% of wallets to be fully compensated. Such a compensation plan is more beneficial Stabilize community sentiment.

The data shows that the 24-hour trading volume of Luna surpassed that of BTC yesterday. The current 24-hour trading volume of Luna/BUSD is 2.357 billion US dollars, while the 24-hour trading volume of BTC/USDT is 1.543 billion US dollars. The number of addresses currently holding more than one BTC has reached 840,475, a record high, but the same number of BTC addresses in a state of loss has reached a record high of 17,968,489.667.

The volatility of the encryption market has an unprecedented impact on the turbulence of the global economy. With the increase of investment participants, enterprises attach importance to the encryption market, and the competition for opportunities, more and more funds flow into the encryption market. Deepening, the risk of overturning and the radiation surface brought about by such market fluctuations are constantly increasing and becoming larger.

This makes people think that El Salvador, the first country to eat crabs, adopted Bitcoin as a legal tender in mid-September last year, and then bought Bitcoin on a large scale. Is it a brave man or a wise man? Under such market fluctuations, what impact will it have on countries such as El Salvador that use cryptocurrencies as their legal tender or hold a large number of investment cryptocurrencies?

El Salvador's President Nayib has mentioned that since El Salvador became the first government to adopt Bitcoin as a legal tender, El Salvador has spent approximately $105 million in fees to purchase cryptocurrencies such as Bitcoin. Since its first purchase, the price of Bitcoin has fallen by 45%, causing the value of the 2,301 Bitcoins held by El Salvador to drop to 66 million US dollars. Compared with the 105 million US dollars spent, the floating loss is more than 40 million US dollars. . This is already higher than the coupon of US$38.25 million on sovereign debt that the country needs to repay next time.

That left El Salvador's bonds trading at a 22 percent discount, a sign that investors are starting to lose faith in the bonds' ability to deliver and could even create the risk of more ultra-high bond defaults. Because of the use of Bitcoin as legal tender, Fitch Ratings, one of the world's three major rating agencies, downgraded El Salvador's sovereign debt rating from B- to CCC, and the same three major rating agencies, Moody's, also downgraded El Salvador's credit rating to This shows the enormous risks it entails.

It appears that such a valiant attempt by El Salvador has so far not delivered the expected financial or other reputational gains. In this regard, Nayib issued a document on May 16 stating that tomorrow 32 central banks and 12 financial authorities (44 countries) will hold a meeting in El Salvador to discuss financial inclusion, the digital economy, unbanked banking, and bitcoin. The promotion of Bitcoin and the benefits of Bitcoin in the country, trying to find the possibility of breaking the situation.