Puerto Rico defaulted on its public debt. The US island territory failed to pay its general obligation bonds on Friday. It owes an estimated $800 million to creditors, while only retaining $350 million in cash on hand.

A spokesperson for the governor defended the decision on Thursday:

“This administration continues to take historic steps to ensure the residents of Puerto Rico continue to receive essential services while the commonwealth continues to face a delicate financial situation.”

Debt in theory guaranteed by the Puerto Rican constitution

According to the constitution of Puerto Rico, general obligation bonds are to be paid no matter what, even at the expense of emergency services such as police and fire protection.

However, governor Alejandro García Padilla indicated he was going against the constitution to prioritize the payment of emergency services. This is the first default by a state-like entity since the Great Depression.

Bankruptcy protections not available to Puerto Rico

Unlike the states, Puerto Rico cannot count on any bankruptcy protections.

In an amendment to HR5174 update to bankruptcy definitions in 1984, a clause was added to prevent Puerto Rico and the District of Columbia from declaring chapter 9 bankruptcy in the same way as the 50 states.

It says:

"State' includes the District of Columbia and Puerto Rico, except for the purpose of defining who may be a debtor under chapter 9 of this title."

This means that Puerto Rico will be unable to go through the bankruptcy process and therefore restructure its debt, develop a delayed or partial payment arrangement with creditors, etc.

Bitcoin is a much more sound investment

Instead of buying Puerto Rican bonds, smart investors will choose to put their money in Bitcoin.

The premier cryptocurrency has increased in value steadily over the last year and a half, growing from about $200 per coin to reaching nearly $800 per coin last month (and is currently valued at almost $700).

Bitcoin has also become a safe haven investment, joining gold as a hedge against turbulent economic times.