The soap opera about the Bitcoin bonds that El Salvador should issue to finance the construction of Bitcoin City continues.
Summary
El Salvador: the failure to launch Bitcoin bonds.
The announcement of the plan to launch these bonds occurred in November 2021, at the height of the bubble.
In theory, they were supposed to be put on the market in March of that year, but the launch eventually skipped, despite it being stated that there were $500 million in applications.
In reality, El Salvador’s goal was to raise $1 billion, to be allocated partly to the implementation of Bitcoin City, and partly instead to the mere purchase of BTC.
Raising dollars in March 2022 and investing them in BTC would not have been a good idea, given what happened next, so it is possible that they decided to postpone the bond launch to wait for better times to buy Bitcoin.
Those times may be here now, so it is not surprising that it is precisely in February 2023 that they seem to want to finally launch them.
El Salvador’s public debt and Bitcoin bond issuance.
Moreover, there was a potentially big problem, related precisely to the country’s public debt, which was only resolved in late January.
Well, we just paid in full, 800 million dollars plus interest.
But of course, almost nobody is covering the story.
I just found one, yes ONE, in spanish, from Colombia https://t.co/PcRES3poE1
They lie and lie and lie, and when their lies are exposed, they go on silence mode.
— Nayib Bukele (@nayibbukele) January 24, 2023
The country has a public debt that while not excessively high in relation to GDP (83 percent) is still by no means easy to sustain.
Amid the 2020 crisis, due to the pandemic, it skyrocketed in a single year from 73% to 92% of GDP, partly due to the reduction in GDP itself.
It must not have been easy to cope with such a rapid and major surge in the debt-to-GDP ratio, but it already dropped to 84 percent the following year.
So it has not yet returned to pre-pandemic levels, but it has already come down quite a bit, partly because of the rebound in GDP in 2021.
Given that bonds are also for all intents and purposes government debt, and given that several international financial institutions, such as the International Monetary Fund (IMF), have expressed a negative opinion on the country’s financial strategies, the government may have had to slow down a bit so that it could first give a clear signal of the sustainability of its debt.
For it should not be forgotten that El Salvador’s creditors include the IMF, which therefore has a say in the matter.
Now that the situation seems to have softened, the chances that it can finally issue Bitcoin bonds, also known as Volcano bonds, seem to be greater.
Launching in 2023?
A few days ago Bloomberg published an article speculating that the launch of El Salvador’s Bitcoin bonds could take place later this year.
Specifically, Bloomberg writes that the crypto exchange Bitfinex expects the bond token to be launched later this year.
In fact, the bonds are expected to be launched in a tokenized format, with the tokens created by the specialized company Blockstream. The bond tokens should be listed on Bitfinex so that they can be purchased by investors.
Digital securities law will enable El Salvador to be the financial center of central and south America.
🇸🇻 https://t.co/1QBcrjxQCC— Paolo Ardoino 🍐 (@paoloardoino) November 23, 2022
In December last year, El Salvador’s parliament officially passed a special law allowing the country to issue its first bond.
According to Bitfinex CTO Paolo Ardoino, at this time there should be sufficient market demand to allow El Salvador to raise the full $1 billion it intends to collect from the bond issue.
However, there is still one bureaucratic step that needs to be taken before the bond can be launched, and that is the creation of a digital securities regulator so that the prospectus can be drafted for potential investors.
In addition, Bitfinex still needs to obtain a license from the local regulator to be able to offer the security exchange, and this should happen once its El Salvador office becomes operational.
Although Ardoino claims that they are on track to make things happen on time, it seems like it will still be a while before the Bitcoin bond can be launched.
Bitcoin in El Salvador
After adopting Bitcoin as a legal tender alongside the U.S. dollar, El Salvador is looking to become a sort of crypto hub of Latin America.
In fact, in Central America, where the small state of El Salvador is located, there are currently no real crypto hubs. However, it could suffer from possible competition with Mexico, which is a much larger and more powerful state where signs of interest in the crypto world have been beginning to appear for some time.
As of now, Mexico has not taken any concrete steps to try to become a crypto hub, while El Salvador has.
It should not be forgotten, however, that Central America is adjacent to, and very similar to, South America. In South America, there are in particular two nations where cryptocurrencies could attract a lot of interest, namely Brazil and Argentina.
Indeed, there are already many people interested in Brazil, but the nation has no crypto hub on its soil.
In Argentina, the spread of cryptocurrencies is less, but given the huge problems they have with their local currency, it’s possible that sooner or later the interest of Argentines will pick up.
Not to mention Venezuela, where the first state “cryptocurrency” experiment failed, and neighboring Colombia.
So the chances that El Salvador could become Latin America’s crypto hub par excellence are there, so much so that the adoption of Bitcoin as a legal tender has already brought benefits in this respect.
Indeed, both the number of tourists traveling to the country has increased, thanks in part to the fact that they can conveniently pay in BTC with minimal fees thanks to the use of Lightning Network, and the number of businesses that are opening locations in the country, Bitfinex foremost among them.
The importance of a favorable regulatory framework
The fact is that Bitcoin being by all means a legal tender, in El Salvador the regulatory framework is, by necessity, favorable to its use. This also implies a favorable framework towards the use of similar instruments, such as Ethereum and to some extent stablecoins.
The very idea of creating Bitcoin City reveals quite clearly the intentions of the Salvadoran government, namely to make its territory decidedly favorable to people and companies that want to use Bitcoin, and other crypto assets.
Given that there is still no real crypto hub in Latin America, and given that cryptocurrencies are beginning to spread throughout the continent, President Bukele’s gamble may eventually turn out to be a very good idea, especially if indeed many crypto companies decide to also operate with territorial offices physically located in El Salvador.
In other words, it appears that the country is voluntarily, and purposely, building a favorable environment for the crypto sector to attract companies and individuals, effectively opening up a whole new world of economic opportunities that have historically been in short supply instead.
El Salvador is not only a poor country (111th in the world in per capita GDP, out of 196 total countries), it also has a recent history of violence, abuse, corruption, and dictatorship behind it, from which it is eager to finally emerge.
over the past decade it has already come a long way to get out of that condition bordering on acceptable for a Latin American country, and becoming a crypto hub could finally give it the big break out of poverty as well, should many crypto companies open physical and active locations in its territory.
It is, however, a very slow and bumpy path, but the way now seems open. In the absence of strong competitors in that area of the world, the chances of it succeeding are definitely greater than zero.
