El Salvador became on Tuesday the first country to adopt Bitcoin as legal tender, triggering concerns amongst bond investors, especially over the government’s Chivo Wallet and the “buy the rumor, sell the fact” Bitcoin price action. Bitcoin’s price tanked by as much as 16% in the so-called ‘El Salvador Selloff’ prior to recovering to reach ~$47,300. El Salvador has now seen its entire yield curve invert (Term of the Day), with short-term bonds yielding more than longer-term debt. This usually indicates a negative outlook as investors consider short-term debt as riskier and most yield curves will slope upwards due to the inherent uncertainty of longer-term pricing. This movement seems to have started in June, precisely when the Bitcoin law was passed. The price action is “an unwelcome sign that the wide use of Bitcoin may have major implications” for El Salvador, according to a Medley Global Advisors strategist.
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