How is your crypto portfolio doing? In the last month, the value of Bitcoin, the most famous cryptocurrency, dropped by 28%, from $42 000 to $32 000. Other crypto assets have also decreased in value considerably. Over the past weeks, tens of thousands of trading accounts got liquidated. Crypto winter is upon us, it seems.
Not all of us, though! It’s always sunny in El Salvador. Nayib Bukele, the president and self-proclaimed CEO of the country who, for months now, has been using the country’s cash reserves to buy Bitcoin, is doubling down on the cryptocurrency. On January 21, Bukele purchased another 410 Bitcoin for $ 15 million. As the price continued to fall in the following days, Bukele changed his Twitter profile photo to an image showing him wearing the uniform of a McDonald’s employee.
Wouldn’t you be all tongue-in-cheek in his position? To Bukele, trading Bitcoin is all game, no skin. Ok, he has some skin politically, I guess, but not financially. He’s trading with other people’s money! Why would he care about crypto winter?!
One reason is… the International Monetary Fund? The IMF is currently contemplating a loan to the struggling Salvadorian economy, which introduced a law making Bitcoin legal tender last year. Last week, the IMF’s Executive Board responsible for the negotiations made a statement stressing that “there are large risks associated with the use of bitcoin on financial stability, financial integrity and consumer protection, as well as the associated fiscal contingent liabilities.” They urged the authorities to narrow the scope of the Bitcoin law by removing Bitcoin’s legal tender status. (They did not say anything about the Bitcoin trades, though!)
Anyway, the main point I want to make here is that illusional things can have real consequences! Case in point Sandcastles: Buddhism & Global Finance, a 2003 documentary by Alexander Oey. In the movie, Tibetan teacher Dzongsar Khyentse Rinpoche, American sociologist Saskia Sassen, and Dutch economist Arnoud Boot talk money, reality and compassion. The main take away from the film seems to be that capital markets exist within a system based purely on self-interest, in which herd behavior, often based on rumors, can inflate or destroy the value of companies – or whole economies – in a matter of hours. Sassen comments about global capital: “It’s not that there are $83 trillion (the figure would be closer to $118 trillion these days-MKB). It is essentially a continuous set of movements. It disappears and it reappears.”
The film came out shortly after the Asian Financial Crisis that gripped much of East Asia and Southeast Asia beginning in July 1997. Thailand was among the countries most affected with the stock market losing 75% of its value in the matter of months. In the United States, the burst of the dot-com-bubble of the early 2000s erased $5 trillion of value in stock market capitalization. A few years after the film was released, the Global Financial Crisis of 2007-08 nearly brought down the global economy following the decrease in value of residential real estate in the United States, which backed trillions-dollars worth of financial instruments.
What does this have to do with Bitcoin? Bitcoin may seem illusional, but also it is not? Goldman Sachs recently noted that the value of digital assets has become corelated with broader economic trends. Bitcoin may seem illusional, but it can have real consequences! We just don’t know yet what they could be.