El Salvador's bitcoin buying spree boosts its risk of default, rating agency Moody's warns

• El Salvador's credit risk may increase if it continues buying up bitcoin, Moody's told Bloomberg.
• The ratings agency downgraded the country's credit to "very high risk" of default in July.
• El Salvador may have lost $10 million in the recent cryptocurrency rout, Bloomberg estimated.

El Salvador's bitcoin buying spree may boost the country's credit risk if it continues, according to ratings agency Moody's.

The country's government, led by President Nayib Bukele, has had liquidity issues in the past, making trading bitcoin "quite risky," Moody's analyst Jaime Reusche told Bloomberg in an interview.

El Salvador has about 1,391 bitcoins in its coffers, according to a Bloomberg analysis, and "if it gets much higher, then that represents an even greater risk to repayment capacity and the fiscal profile of the issuer," Reusche said. Moody's did not immediately respond to Insider's request for comment.

El Salvador has an $800 million bond maturing in January 2023, Bloomberg said. In July last year, Moody's downgraded the country's credit rating to CAA1, meaning it has a very high risk of default on its loans. The ratings agency cited a "challenging redemption schedule" and "a deterioration in the quality of policymaking," as part of its reasoning for the downgrade.

Last year, the country made bitcoin a legal form of tender, and announced in November it would launch a $1 billion, 10-year bitcoin bond via Blockstream.

Those crypto bonds could help the country pay off its debt, Moody's told Bloomberg, but "unless Bitcoin bonds are very well received and oversubscribed, we are seeing that the probability of the need to restructure their traditional market bonds is increasing."

Cryptocurrencies have largely been in a rout recently, following a hawkish report from the US Federal Reserve. As of 8:50 a.m. in New York Friday, bitcoin traded at $42,283.80; that's an approximate 40% drop from its high last year of $69,000.

President Bukele is now known for trading the cryptocurrency on his phone, and the recent sell-off may have cost El Salvador an approximate $10 million on its bitcoin holdings, Bloomberg estimated previously. Even so, the actual performance of El Salvador's crypto portfolio is unknown as it's not publicly available.