The recent BTC price gyrations illustrate one shortcoming I pointed out in El Salvador's Bitcoin Law, which includes a plan to have the gov't establish a $150m "trust fund" w/ which to absorb BTC-to-USD risk.
I wrote : "If bitcoin's price continues along its recent roller-coaster, with more bitcoin redemptions...during downturns than upturns, [the] fund might gradually trickle down to nothing." alt-m.org/2021/06/17/the…
When Salvadorans don't fear a decline in BTC's price, or expect it to appreciate, more will prefer to hold BTC than exchange it for USD at the "Casa de Cambio" that is to be established at Bandesal, El Salvador's gov't-owned development bank, limiting the fund's growth potential.
On the other hand, a BTC bear market is likely to result in relatively large-scale redemptions, exposing the fund to losses. The government's plan to invest the fund in BTC rather than dollar assets will of course only serve to compound such losses.
In short, although the government may, for a while, protect Salvadorans from incurring any risk of losses from accepting BTC rather than USD in payments, as they all will eventually be required to do, it may eventually have either to cease doing so, or...
...raise taxes so as to replenish the trust fund. Either way, the people of El Salvador must ultimately bear the exchange-rate risk implicit in Bitcoinization. There is no such thing as a free lunch.
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