Nayib Bekele, the highly popular president of El Salvador, has done a lot for the country. He has turned it from one of the most dangerous countries on earth into one of the safest one in the world by locking up criminals. Most importantly, there are signs that his decision to invest some of the country’s funds into Bitcoin is working.
El Salvador Bitcoin holdings
El Salvador made history as the first country in the world to accept Bitcoin as a legal tender a few years ago. This means that people can now pay for government services using the biggest cryptocurrency in the world.
That move made El Salvador one of the most popular countries among players in the crypto industry. Some mining companies diversified their holdings by moving to the country as its security situation improved.
Nayib Bekele followed this move by accumulating Bitcoin for the country. He started making the purchases in September 2021 when Bitcoin was trading at $51,769. He then made more purchases as the coin’s price was crashing, including in July 2022 when it tumbled to $19,000.
This approach is known as dollar cost averaging (DCA). It happens when a confident investor buys an asset when its price is in a downward trend. The hope is that the price will finally bounce back, which is exactly what has happened recently.
His initial Bitcoin purchases have now broke even since Bitcoin has moved to $52,000. Most importantly, the coins that he bought in July 2022 have risen by more than 173%. Data shows that El Salvador’s Bitcoin holdings are now valued at over $147 million.
According to Nayib Tracker, the country spent $120 million in purchasing these Bitcoins, meaning that it has made a $27 million profit so far. This is a substantial amount for a small country like El Salvador that has a GDP of over $28 billion.
Bitcoin price outlook
Most importantly, El Salvador may continue benefiting in the coming months as most analysts expect that Bitcoin price has more upside to go. First, there are signs that major Bitcoin ETFs by the likes of Blackrock and Fidelity are seeing more inflows. IBIT has grown its total assets to more than $6 billion in less than two months while FBTC has reached over $4 billion.
Second, Bitcoin halving is coming in the next few months. This halving will lead to a big reduction in daily Bitcoin rewards or production. Therefore, a combination of more more demand from institutional investors and slow growth will likely lead to higher prices.
We often see this in the oil industry where decisions to slash production are accompanied by higher prices. The same happens in other metals like copper and iron ore.
Further, there are chances that the Federal Reserve will start cutting interest rates later this year now that the American inflation is slowing. The most recent data showed that inflation has stabilized at 3%.
Bitcoin tends to thrive when the Fed is either cutting rates or when it has signaled that it will cut them later.
Finally, as I wrote on Tuesday, Bitcoin has formed a unique bullish pennant pattern and moved above the resistance at $50,000. This means that bulls are in control and that they will attempt to retest the important resistance point at $69,000.
If this happens, it means that El Salvador’s Bitcoin holdings will go up substantially later this year. The main risk is that investors could sell the halving news and push the cryptocurrency lower after halving.
Contributors
