El Salvador is preparing to launch Bitcoin Bonds, which are government bonds backed by Bitcoin to create Bitcoin City. The launch is expected to take place between 15 and 20 March.
El Salvador’s Bitcoin Bonds halted by war in Ukraine
Unfortunately, the government of El Salvador’s plans have been slowed down by the war between Russia and Ukraine, which has obviously disrupted the initial projects.
According to Reuters, which cites an interview with Finance Minister Alejandro Zelaya, some details are missing:
“We believe that between March 15 and 20 is the right timing, we have the tools almost finished. But the international context will tell us … I didn’t expect the war in Ukraine. We’re still finishing some details, almost everything is ready, the thing is there is also a timing issue”.
The simple fact is that the war in Ukraine has brought a lot of volatility to the cryptocurrency market. The government of El Salvador probably wants to wait for a calmer moment.
The fate of El Salvador
El Salvador plans to issue its own $1 billion Bitcoin bond, with annual interest of 6.5% and a 10-year maturity. The bond is also reportedly expected to guarantee a distribution of 50% of the gains on the price of Bitcoin after 5 years. With the funds raised, the country will build a Bitcoin city powered by energy from the Conchagua volcano, which will also provide the resources needed to mine BTC. The other half will be reinvested in BTC.
However, this continued bet on Bitcoin puzzles international observers.
First of all, it is worth noting that since September 2021, i.e. when Bitcoin became legal tender in El Salvador, until today, the price of BTC has halved. The fact of having adopted Bitcoin as legal tender cost President Nayib Bukele the hostility of the International Monetary Fund with which he was negotiating a $1.3 billion credit line.
The Bitcoin bond is also a way to raise funds without going to the notoriously more austere international authorities.
But according to the Financial Times, if this bet goes wrong, other doors could close for El Salvador, which would mean that Bukele would need to find other ways to get financing and make the country’s debt sustainable.
Who is investing in the Volcano Bond
Meanwhile, El Salvador’s Bitcoin Bond, or Volcano Bond, has already garnered applications for $500 million through trading operated by Bitfinex. Giving updates was Samson Mow, Chief Strategy Officer of Blockstream who explained in an interview with Coindesk:
“There’s a lot of interest and the Bitfinex team has stopped taking commitments after 500 million so I think the focus now is working with issuer in El Salvador to work on their key information document which will outline the specific investment details
of the volcano bond and then uh they’ll probably have a sign up form or something where people can register and you know put their names on the list”.
Those looking to invest in El Salvador’s bond, according to Blockstream’s CSO, are Bitcoin traders, whales, crypto companies and crypto hedge funds. Mow says he is certain that pension funds and institutional investors will come next:
“Everyone’s watching to see how the first volcano bond goes and just making sure everything works perfectly and then I think the more risk-averse players will come in at a later date”.
This is likely to be the same sentiment as that of President Bukele.