Tuesday, December 7

El Salvador will issue Bitcoin Bonds to finance the ‘Bitcoin City’

Yes, you read it right. El Salvador plans to build the so-called ‘Bitcoin City’, a city free of taxes on income, property and capital gains. But for this you obviously need financing and this is where the Bitcoin Bonds come into play. We tell you!

El Salvador continues to adopt Bitcoin with its eyes closed

This Saturday, during laBITconf, the President of El Salvador announced that he will initially finance Bitcoin City with the issuance of one billion dollar Bitcoin-backed sovereign bonds.

According to what Bukele explained, the city will be located in the east of the country, near the Conchagua volcano. And why near a volcano? Well, because they will use it as a source of geothermal energy to boost Bitcoin mining. Therefore, the Bitcoin City would seek to be carbon neutral.

This is how Bukele declared, according to Reuters, «Invest here and earn all the money you want. This is a totally ecological city that works and is energized by a volcano.

And, as we mentioned previously, the city will only collect the value added tax, or VAT. In fact, half of the VAT collected will be used to finance the bonds issued and the other half will be used to pay for services such as garbage collection. Likewise, the president of El Salvador estimated that public infrastructure will cost around 300,000 BTC.

What will the Bond issue be like?

El Salvador needed to find an ally that will handle the issuance of Bitcoin bonds and found it in Blockstream, a company focused on Bitcoin services.

In this way, the plans are to issue US $ 1 billion in 10-year dollar-denominated tokenized bonds. In addition, these bonds will pay 6.5% through Liquid Networks, according to Samson Mow, Blockstream’s chief strategy officer.

Half of the bond funds will be converted to Bitcoin and the other half will be used to establish the infrastructure and mining of Bitcoin powered by geothermal energy.

Upon passing the 5-year lockdown period, the government will start selling its Bitcoins and pay an additional dividend to investors, according to Bloomberg. In addition, Bitfinex will be the crypto exchange that will be part of the process.

A very important fact is that the bonus will be available to users from various parts of the world, allowing you to invest in small amounts of up to USD 100.

Will these bonds be profitable?

It is probably more than evident that El Salvador’s latest move in a Bitcoin City is, to say the least, risky.

According to Blockstream’s presentation, their projections are for the bond’s annual yield to be 146%. However, this appreciation is based on the price of Bitcoin continuing to rise and reaching USD 1 million in five years.

Furthermore, they argue this valuation of Bitcoin in that this bond project alone will take $ 500 million worth of BTC off the market during the first five years. The problem is that it is a risk associated with the volatility associated with Bitcoin. What if Bitcoin faces a correction just past the first five years?

However, this is not all. Mow, along with Bukele, assured that all investors will be granted permanent residency and citizenship will be accelerated.

Likewise, Mow assured that El Salvador’s plans will make it the “financial center of the world” and “the Singapore of Latin America.” In addition, he assured that this will be the beginning of the “Nation State Bitcoin FOMO.”

Is this legally possible?

Not at all. El Salvador must approve a new securities law and allow Bitfinex, the selected crypto exchange, to organize the issuance of Bonds.

However, let us remember that Bukele is part of the New Ideas party; which controls most of the legislative power in the country.

So even when there seems to be discontent among the country’s population about the adoption of Bitcoin, the approval of the new law is probably a mere formality.


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