Fitch lowers El Salvador’s rating due to Bitcoin adoption

El Salvador is being whipped by a traditional finance company for its “forbidden love” for Bitcoin (BTC).

Fitch Ratings, an American credit rating agency, downgraded El Salvador’s long term Issuer Default Rating (IDR), from B- to CCC. They cited “policy uncertainty” and “adoption Bitcoin as legal tender” among the factors that contributed to the downgrade.

These and other factors are explained by the statistical rating agency. They also mentioned that the country’s dependence on short-term debt, a $800 million Eurobond payment due January 2023 and a high fiscal gap get in the way of a better rating.

Fitch also believes that El Salvador’s short-term debt could cause financial problems for the government, increasing the risk of a rollover. Fitch notes that the country will face more financial challenges with nearly $1.3 billion due in August and September.

Fitch also stated that the country faces increasing risks due to “high and growing financing requirements” over the next years. Fitch mentions that BTC being used as legal tender in the country creates uncertainty about a possible program from the International Monetary Fund, (IMF), that could provide the financing the country requires in 2022-2023.

If the country meets Fitch’s criteria (e.g., consistency in settling debts through “unlocking predictable sources financing” and a fiscal adjustment that focuses on debt sustainability), then its rating could still be raised in time.

Related: IMF urges El Salvador not to recognize Bitcoin as a tender

Nayib Bukele, President of El Salvador, recently predicted that the price of Bitcoin might rise soon. The president cites the global number of millionaires and says that if they decide on owning at least one BTC, there will not be enough Bitcoin to go around.

Fitch Ratings warned energy suppliers in the United States about crypto miners back in January. According to Fitch Ratings, only a few states can supply the energy required for mining. According to the firm, mining operations are sensitive to price and could be closed if profits drop.