Investing in crypto is a risky business — particularly when you’re betting with a country’s future. It’s nonetheless a gamble that El Salvador’s president has been eager to make.

Nayib Bukele’s splurging on bitcoin has been lauded by crypto advocates, but criticized in the traditional financial world.

The IMF has been among his most vociferous detractors. The International Monetary Fund has repeatedly urged El Salvador to ditch Bitcoin’s legal sentence — much to Bukele’s chagrin.

Here’s a brief history of the dispute between the lender and the Central American nation.

March 2021: El Salvador pursues IMF funding

Days after Bukele’s ruling party won a landslide election victory, a government official tells Reuters that El Salvador is seeking $1.3 billion in funding from the IMF.

Finance Minister Alejandro Zelaya says the deal would help leverage budgetary gaps and lower costs associated with the country’s debt.

The IMF had made a previous emergency loan to El Salvador to help with the pandemic in 2020, which it also did for numerous other countries.

June 2021: Analysts warn that bitcoin will complicate IMF deal

Bukele plans to make bitcoin legal tender in El Salvador.

Proponents say the move could help Salvadorians without bank accounts, make it more efficient to send remittances, boost economic development, and end the reliance on global financial institutions.

However, the proposal sparks concerns about the IMF deal.

Siobhan Morden, an analyst who heads Latin America fixed-income strategy at Amherst Pierpoint Securities, says Bukele’s tweets about bitcoin could disrupt the negotiations :

June 2021: Congress approves bitcoin law gets congressional approval

Congress approves Bukele’s proposal to adopt bitcoin across El Salvador.

The digital asset is set to join the US dollar as legal tender in 90 days. The bitcoin/dollar exchange rate will be set by the market.

July 2021: IMF warns against using crypto as legal tender

As El Salvador prepares to adopt bitcoin nationwide, the IMF cautions countries against usingcryptocurrencies as legal tender. The lender says the move could financial stability and integrity.

Ricardo Castaneda, senior economist and coordinator for El Salvador at the Icefi think-tank, tells the FT that Bukelele’s plans could complicate relations with the IMF:

September 2021: Bitcoin is adopted

El Salvador becomes the first country in the world to adopt bitcoin as legal tender.

The move means citizens can use the cryptocurrency to make purchases, pay taxes, and send remittances. A new digital means of payment — the Chivo e-wallet — is also introduced. Citizens who download the app are promised a $30 reward.

The initial rollout is marred by technical issues, protests, and slow adoption. Critics fear the move will plunge the country into further debt.

A day before the law comes into effect, Bukele snaps up more bitcoin after a price dip that he credits to the IMF .

However, not all of his attempts to buy the dip are perfectly timed.

October 2021: Bitcoin pitched as beneficial to IMF deal

The president of El Salvador’s central bank argues that adopting bitcoin won’t create an obstacle to negotiations with the IMF.

Instead, he says the project’s benefits will be a focus of the talks.

November 2021: Bukele plans ‘Bitcoin City’ and ‘Bitcoin Bond;’ the IMF issues another warning

At an event in the beach resort of Mizata, Bukele unveils plans to build the world’s first “Bitcoin City.”

Donning his trademark backward baseball cap, the 40-year-old tells the crowd that the city will be built near Venezuela’s Conchagua volcano.

The volcano would provide geothermal power for both the city and Bitcoin mining. Bukele says funding will come from a sales tax and an issue of $1bn in sovereign bonds backed by Bitcoin.

Half of the $1 billion in bonds will go towards building energy and mining infrastructure. The other half will be invested in bitcoin.

The announcement comes on the same day that the IMF reveals its early findings from a visit to El Salvador.

The statement advises the country to be cautious with bitcoin:

Bukele points to the positives. He notes that the IMF’s evaluation includes considerable praise of his government.

January 2022: IMF urges El Salvador to remove bitcoin as legal tender

The IMF concludes a consultation with El Salvador by urging the country to “remove Bitcoin’s legal tender status.

In a statement , the fund’s directors stress the “large risks associated with the use of bitcoin on financial stability, financial integrity, and consumer protection.” They also express concerns over the risks associated with issuing bitcoin-backed bonds.

In keeping with his image as an edgelord, Bukele responds with a meme.

The president is not alone in mocking the IMF. Critics argue that the fund’s actions are driven by a desire to protect currencies, debts, and monetary policies that it can control.

Others, however, argued that the IMF legitimately believes that the project will be disastrous for El Salvador’s economy.

The IMF seems unlikely to provide financing until changes are made, but Buekele shows no signs of backing down. Their impasse may continue until bitcoin reaches a momentous tipping point.

How the SPAC bubble blew up and burst

What do Taylor Swift’s record company and Asian “super-app” Grab have in common? They are both part of Wall Street’s recent dealmaking fad: Special Purpose Acquisition Companies (SPAC).

SPACs are shell companies that are floated on the stock market with one purpose: to buy another company. This aims to achieve the same as a stock-market listing or initial public offering (IPO) but in reverse. Instead of a traditional company seeking to raise capital from investors through an IPO, with SPACs the empty listed company is set up first. For this reason, they are sometimes known as blank-cheque companies.

Depending on where the SPAC is listed, whoever is in control usually has two or three years to find a company to buy. If they fail, the SPAC will be wound up and the funds returned to investors.

The SPAC explosion

SPACs have been around since the 1990s, but they exploded in popularity in 2020 and early 2021. This is partly because there has been more and more capital looking to make money, since bonds have been paying unattractively low-interest rates, and far fewer companies are listing than in previous decades.

Regulations have made traditional flotations slower and more expensive. Flotations are also traditionally underpriced on the day of listing to drum up investor interest. But a crucial advantage of SPAC deals is that they are privately negotiated and avoid the risk of money being “left on the table”.

High-profile deals involving SPACs have included Virgin Galactic , sports betting group DraftKings , and a digital manufacturing firm called Velo3D whose Spac has Serena Williams on the board.

More recently Singapore-based app Grab , which offers everything from ride hailing to online banking, has done a SPAC deal which will see it valued at US$40 billion (£29 billion). And star US hedge fund manager Bill Ackman, who created the biggest SPAC ever in 2020 with a value of US$4 billion, is using it to buy 10% of Universal Music, whose roster includes Taylor Swift, Kanye West, and Sting.

Yet despite this eye-catching activity, many would say the bubble in SPACs has burst recently. Only 30 SPAC flotations took place in April and May compared to 299 in the first three months of the year, while total Wall Street investment-bank revenues derived from these vehicles have fallen from over 20% to under 5% over the same period.

Finally, the two largest US exchange-traded funds focused on SPACs – SPAK and SPCX – are down 26% and 12% in value respectively from their February highs. This is probably linked to US regulator the Securities and Exchange Commission (SEC) beginning to rein in the sector to protect retail investors .

Though in my view the rate of SPAC creation would have slowed down to reach a lower equilibrium anyway, the SEC intervention is reducing some of the benefits to using SPACs as a way of accessing the capital markets. For instance , the SEC has made it harder for SPACs to reward early investors with shares in a company after an acquisition and is looking at preventing the management from making statements about future profitability.

SPAK share price, October 2020 to June 2021

The bitcoin parallel

Regulators often resist financial innovation in the hope of reducing the uncertainty in investing. It is not by chance that Gary Gensler, the SEC chair, recently associated SPACs and bitcoin when he spoke of the need for better investor protections. As with SPACs, regulatory moves to restrict the use of bitcoin and other cryptocurrencies have probably contributed to prices falling lately (along with other worries such as bitcoin’s carbon footprint ).

And that’s not all SPACs and bitcoin have in common. Bitcoin is e-money that can circulate anonymously among infinite users without needing banks or a central issuing authority. But these potential benefits depend on enough users accepting it as a store of value. To paraphrase something said of currencies in general, bitcoin is like a religion, based on faith.

The same is true of SPACs, in that public investors entrust the management to find a suitable takeover target. And both bitcoin and SPACs disrupt the common wisdom around an established financial practice. While bitcoin is a new way of exchanging value, some have described SPACs as the second coming of the IPO .

In part due to the severe restrictions that a traditional IPO places on how a company may communicate its story, companies not yet producing revenues had been staying private for longer. SPACs changed this, and in the process became a way for amateur investors to be part of late-stage venture capital funding. Instead of only accredited professionals and insiders providing such funding to new companies, SPACs open them up to anyone – particularly in an era where stock-market investing has been made easier thanks to apps like Robinhood and eToro.

In this way, investors can make bets on whether new kinds of investment like SPACs and cryptocurrencies will succeed. Inevitably they need to be regulated, but regulators will need to be careful in how they handle these nascent products if they want them to develop. Vehicles for creating future wealth, be it SPACs or bitcoin or anything else, are underpinned rather than undermined by uncertainty. Again, the same is said of bitcoin and other cryptocurrencies: if amateur investors think a crypto project could eventually go stellar, by buying and holding the relevant coins they can invest far earlier than with equivalent projects in previous decades.

They have developed systems for self-regulating by specialists who often understand the needs of the various players better than the regulators themselves. In the case of SPACs, regulators should focus on ensuring that the financial information published by the companies involved is truthful and consistent – so, for instance, the SEC is right to be tightening up on to what extent SPAC operators disclose conflicts of interest.

Article by Daniele D’Alvia , Teaching Fellow in Banking and Finance Law, Queen Mary University of London

This article is republished from The Conversation under a Creative Commons license. Read the original article .

Robinhood traders are loading up on these stocks while markets are plunging

It’s been precisely a month since the S&P 500 has started its violent plunge due to the coronavirus crisis. Since then, the index has declined a staggering 29%, from its all-time high of 3,386 to 2,409 points as of yesterday.

While the markets have been selling off, Robinhood users weren’t just unable to sell because the app was down, they also weren’t willing to sell. In fact, the number of unique stock positions (holdings) among Robinhood users has been surging, according to data provided by Robintrack .

In the last month, the top 50 stocks that saw the highest amount of changes in popularity — positive or negative – all concern stocks that saw an increase of ownership among Robinhood users.

So what stocks have Robinhood users added to their portfolio? While modern value companies with great balance sheets such as the MAGAs – Microsoft, Apple, Google, Amazon – are finally trading at a significant discount, Robinhood users tend to lean towards the riskier parts of our economy in these trying times. They’re leaning towards the hardest hit industries in this crisis, in particular either in or related to the travel industry.

Ten of the fifteen stocks that saw the highest increase in unique holdings among Robinhood users, fall under that description, namely:

American Airlines – from 50,000 to 124,000 holdings

Disney – from 261,000 to 332,000 holdings

Carnival – from 35,000 to 101,000 holdings

Norwegian Cruise Line – from 13,000 to 77,000 holdings

Delta Air Lines – from 46,000 to 104,000 holdings

Royal Caribbean – from 19,000 to 74,000 holdings

Boeing – from 50,000 to 104,000 holdings

GE – from 358,000 to 411,000 holdings

Uber – from 139,000 to 178,000 holdings

United Airlines – from 14,000 to 52,000 holdings

Stock prices in these industries have been hit the hardest, suggesting perhaps a deeper ‘dip’ to buy. However, it is increasingly likely that many of these companies will need government support or even bailouts, adding to — at least the short and medium term — risk of further declining stock prices.

These latest stats add to our previous report on the limited level of risk adversity among Robinhood users.