El Salvador Bukele’s administration proposed ‘Bitcoin bonds’

The idea for El Salvador’s ambitious “Bitcoin bonds” campaign, which was conceived at a period of falling prices in the cryptocurrency market, has already moved forward a significant amount toward actualization.

A legislation that underlines the government’s intention to create one billion dollars and spend it on the establishment of a “Bitcoin city.” was suggested by the Minister of the Economy, Maria Luisa Hayem Brevé.

It was on November 17 that a measure pertaining to digital securities comprising 33 pages was presented to the El Salvador House of Representatives with the request that they draft a legal framework that would make it possible for the country to use digital assets in its public offerings.

Volcano bonds, sometimes known as Bitcoin bonds, were first introduced by the financial system by the government of Nayib Bukele, who served as president from 2021 to 2022.

The initial version of the proposal called for the sale of bonds with a total face value of close to one billion dollars, with the proceeds from the sale going toward the development of a “Bitcoin City” at the base of the Colchagua volcano. This version of the proposal was scrapped after it was determined that the sale of the bonds would not be profitable.

It is believed that the hydrothermal energy generated by the volcano will make the city an excellent site for a cryptocurrency mining factory, and that this will happen since the city will be situated in close proximity to the volcano.

Bitcoin would get a direct investment equal to fifty percent of the entire amount produced if this proposal were to pass.

The undertaking has been continually hampered by postponements throughout the course of the preceding year and a half. After initially being scheduled to start at the beginning of March, the launching phase of the project was first postponed until September, and then it was delayed once again for “security reasons.”

The possibility that the proposal will be approved by the legislature before the winter holidays has been raised by a few different sources.

When Bitcoin was finally recognized as a form of legal cash on September 7, 2021, El Salvador was given more than 2,301 BTC as their reward. This sum is about comparable to $103.9 million dollars.

During the period of time when the stock market was thriving, the gains from the investment were even utilized to contribute toward the building of healthcare facilities and educational institutions.

Despite this, 77.1% of people living in El Salvador are of the opinion that the government should stop “spending public money on Bitcoin.” especially considering the continued decline of the country’s economy.


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El Salvador Scoops 410 BTC as the Coin Slumps to a 5-Month Low

Last week, the digital currency ecosystem slipped to unprecedented lower levels when Bitcoin (BTC) dipped to its lowest level in 5 months to a price below $39,000.

The crypto trading world was sent into a frenzy as many liquidated traders. However, some saw the price slump as a major discount to accumulate and top up their bags.

One of these is El Salvador, whose president, Nayib Bukele, announced the administration had acquired another 410 Bitcoins for just $15 million. By this latest purchase, the country now holds a total of 1,801 BTC, as it continues to rank as one of the most crypto-centric nations in Central and Latin America.

To many, periods of market slumps, aptly called ‘Bear Market’, is a time to dread for most traders. However, for investors who believe in the futuristic potential of Bitcoin as a worthy investment asset, price crashes are often seen as a blessing in disguise. While retail traders are likely to avoid further acquisition during periods of Bitcoin price slumps, corporate investors like MicroStrategy also come off as one of those who takes advantage of price crashes to accumulate more.

El Salvador adopted Bitcoin as a legal tender back in September 2021, and thus far, President Nayib Bukele has stirred the nation’s economy to pay a lot of attention to Bitcoin. Besides utilizing a geothermal energy source for Bitcoin mining and tapping into its rich volcanic energy, the country hopes to build a Bitcoin City that will serve as a model for other countries to learn from. 

The continuous accumulation of Bitcoin by El Salvador has drawn criticisms from known economists who believe Bitcoin is in a bubble and that holding the nation’s reserve in it is unwise. Despite this economic antagonism,  Bukele seems unrelenting in his course until some of his projections for adopting Bitcoin are met.

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El Salvador Prepares Regulatory Framework To Issue Controversial Bitcoin Bonds

Will the plan work? Soon, the Bitcoin Bonds will get the legal foundation they need. In a recent TV interview Alejandro Zelaya, El Salvador’s Finance Minister, said they will send the necessary bills to Congress. Soon. Reportedly, El Salvador will initially issue $1B worth of bonds, which will have a ten-year maturity and carry a 6.5% coupon. The bitcoin that backs them will be locked for five years.

The project, announced by President Bukele at Labitconf 2021, includes plans to build Bitcoin City. More on that later. In a scheme worthy of MicroStrategy, El Salvador will spend half of the money on the construction of Bitcoin City and will buy Bitcoin with the other half. Will the plan work? Well, they have to sell the bonds first. And for those to exist, a regulatory framework is required.

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What Did El Salvador’s Finance Minister Say About The Bitcoin Bonds?

In an interview in the local TV show “Frente a Frente,” Zelaya announced the plan’s following steps. Reuters reports:

“El Salvador’s government will send to Congress about twenty bills covering financial markets and investment in securities to provide a legal foundation for issuing bitcoin bonds, Finance Minister Alejandro Zelaya said on Tuesday.”

The Finance Minister didn’t specify exactly when they will introduce the bills. But the will is there. According to El Salvador In English, Zelaya said, “This type of legislation is what we are going to send to the Legislative Assembly to be able to give legal scaffolding and legal certainty to all those who buy the Bitcoin bond.”

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Through the Ministry of Finance’s Twitter, they quote Zelaya being even more daring. “El Salvador could become a regional center where other countries can issue debt, we have great advantages such as having a dollarized economy and pioneers regarding crypto.”

Adding fuel to the fire, President Bukele said via Twitter, “It’s to cover and guarantee the Bitcoin Volcano Bonds, but also a full re-engineering of the economy and of the way a nation state does business.” Not satisfied with that bomb, he added, “Everybody searching for freedom: this is the place to come.”

What About Bitcoin City? Is That A Go?

The Bitcoin Bonds will finance the construction of Bitcoin City, but, what’s that exactly? When President Bukele announced El Salvador’s plans, NewsBTC timely reported: 

“According to Bukele, Bitcoin City will be a full-fledged metropolis with residential and commercial areas. It would also have shopping centers, restaurants, a port, an airport, and railway services. There would be no income, property, capital gains, or payroll taxes. Residents would, however, be subject to just value-added tax (VAT). This tax will go towards paying for the municipality’s bonds, public infrastructure, and city maintenance.”

However, more recently, an investigative report by podcaster Anita Posch cast doubt upon the Bitcoin Bonds and the whole enterprise:

“Apparently, the seemingly advanced plan for Bitcoin City was a collage. “At least some of the Bitcoin City presentation slides were downloaded from the internet and there was no detailed plan behind the announcement.” Not only that, the structure behind the Bitcoin bonds that will finance the whole operation was also improvised. “The way the Bitcoin bonds will work was finally decided only a few minutes before Samson Mow took the stage.”

However, the plan is a go, and Blockstream’s Samson Mow is all-in on it. He recently tweeted the trailer for an upcoming documentary on El Salvador and its Bitcoin City plans. In the tweet, he threw an extremely optimistic, “Bitcoin is going to save the world and it starts here in El Salvador.”

Will the plan work? Is Bitcoin City a real project or a hastily put together mess? Do the Bitcoin Bonds offer a high enough return? Or are the Bitcoin Bonds too risky? Wouldn’t it be better for an investor just to buy bitcoin with that bonds money? Or are we missing something? 

To answer all those questions and more, El Salvador needs a regulatory framework to issue the Bitcoin Bonds. And the roughly twenty bills that guarantee that are on their way to Congress.

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El Salvador prepares 20 bills to provide legal framework for Bitcoin bonds

El Salvador’s government, led by President Nayib Bukele, has moved ahead with plans to issue Bitcoin bonds by preparing 20 bills designed to provide a legal framework for them.

Head of the Treasury Alejandra Zelaya told El Salvadoran media El Mundo on Jan. 4 that the bills will cover regulations about issuing securities as cryptocurrency to ensure the viability of the Bitcoin bonds that were proposed in Nov. 2021. He said:

“[This is] to provide a legal structure and legal certainty to everyone who buys the Bitcoin bond.”

However he did not propose a timeframe for the legislation to be submitted to lawmakers.

The $1 billion sought by the bond issuance would be used to fund the Bitcoin City initiative which President Bukele has promised will provide “digital and technological education, geothermal energy for the entire city, and efficient and sustainable public transport.”

One of the features of the Bitcoin City is a Bitcoin (BTC) mining operation that harnesses the geothermal power generated by a volcano to power the mining rigs — leading to the bonds being dubbed “Volcano Bonds.” The mining operation mined its first 0.00599179 Bitcoin on Oct. 1 2021.

Funds from the bond issue could also be used to pay down an $800 million Eurobond issue which will mature in Jan. 2023. Zelaya told El Mundo that the country would need to find financiers to help fill their obligation to pay off the Eurobonds which could come from Bitcoin bonds or from “institutional offers from various investment banks,” rather than another Eurobond issue.

“We can simply make payments without creating another Eurobond in the traditional market, and we can find a bond that is denominated in dollars and receives payment in Bitcoin.”

A Eurobond is a debt tool for countries to raise funds in a denomination other than its own currency.

Zelaya also indicated that there is significant interest in the Bitcoin bond from investors as it offers exposure to BTC and a 10-year maturity of 6.5% interest.

Related: President Bukele predicts Bitcoin rally to $100K, further legal adoption and more

The issuance of Bitcoin bonds would not, however, preclude the Central American nation from participating in traditional finance. Zelaya said “We are not going to abandon the traditional market.”

Notable partners with El Salvador in the creation of the Volcano Bonds include blockchain developer Blockstream and iFinex, which is closely related to stablecoin Tether (USDT). The bonds are expected to be issued on Blockstream’s Liquid Network and processed by iFinex.

President Bukele tweeted his 2022 predictions on Jan. 2 that “Bitcoin City will commence construction,” and “Volcano bonds will be oversubscribed.”


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El Salvador Prepares Legislation for First Bitcoin Bond

Key Takeaways

  • El Salvador will send roughly 20 laws to Congress in preparation for launching a Bitcoin bond, the Minister of Finance has confirmed to local news.
  • The country is planning to issue $1 billion in Bitcoin bonds to fund its previously announced “Bitcoin City” plans.
  • One proposal is to grant residency to Bitcoin holders who settle in the country.

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El Salvador’s government is hoping to issue $1 billion in Bitcoin bonds. 

El Salvador Moves Toward Issuing Bitcoin Bond

Not content with adopting Bitcoin as an official currency, El Salvador is planning new legislation as part of a move to issue $1 billion in Bitcoin bonds. 

The Central American country’s Minister of Finance, Alejandro Zelaya, told Telecorporación Salvadoreña that the government would be sending around 20 laws to Congress in advance of issuing its Bitcoin bond. Zelaya said that the bond, otherwise known as EBB1, would focus on promoting “innovation and financial freedom” in El Salvador. “Since a Bitcoin bond has never been issued, a series of regulations must be issued,” he said. 

Zelaya further added that the country was proposing a plan to offer benefits to Bitcoin investors who take up residence in El Salvador, including granting them nationality. “There are Bitcoiners and friends of mine who want Salvadoran nationality and ask me how they can obtain it, but the country’s legislation does not have those benefits,” he said, noting that the United States offers similar incentives to individuals who make investments in the country. He also noted that the laws would relate to the country’s plans to become a debt market center in partnership with the Central American Bank for Economic Integration. 

President Nayib Bukele announced the country’s ambitions to issue its first Bitcoin bond in November when he revealed that it would be building a city dedicated to the world’s leading crypto. “Bitcoin City” will have its own residential and commercial areas, restaurants, and a plaza, and will initially be funded by the Bitcoin bond, Bukele said at the time. The President also promised that Bitcoin City residents would be exempt from paying income tax, property tax, capital gains tax, and payroll tax. The country is planning to use half of the bond for energy and mining infrastructure, and the rest will be invested in Bitcoin. Blockstream is developing the bond on the Liquid Network. 

During the Telecorporación Salvadoreña interview, Zelaya said that the country would need to establish “a democratic process” to approve Bitcoin City since the plans have not yet been made into law. One viewer asked Zelaya about El Salvador’s process for investing in Bitcoin, to which he responded that the government is working with the team at Chivo, the firm powering the country’s digital wallet, to accumulate the asset. Bukele has taken to Twitter on several occasions to announce the country has “bought the dip” during market retraces in recent weeks; the country now holds 1,391 BTC worth about $64.9 million at today’s prices. 

El Salvador officially adopted Bitcoin legal tender back in September in what was described as a landmark moment for the cryptocurrency industry, but its path to adoption has been far from smooth. Thousands of Salvadoran residents have protested against Bukele’s government in part because of its Bitcoin adoption policy, while other critics have included Vitalik Buterin, the IMF, and the World Bank. 

Disclosure: At the time of writing, the author of this feature owned ETH and several other cryptocurrencies.

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Bitcoin will Reach $100K in 2022: Nayib Bukele Predicts

El Salvador President Nayib Bukele predicted his bullish forecasts for bitcoin in 2022 on his Twitter on Sunday, saying that the bitcoin price will reach a high of $100K this year.

In addition, he also stated that Bitcoin will “become a major electoral issue in U.S. elections this year”, asking his 3.2 million Twitter followers to pay attention to the “big surprise” at the Bitcoin 2022 conference. He also has confidence in Bitcoin adoption, estimating two more countries might adopt it as legal tender. 

Meanwhile, it is predicted that Volcano bonds will be oversubscribed. The total estimated amount to be pulled from the bonds is $1 billion. He wrote on the post:

“Bitcoin City will commence construction”

Last year, in September, El Salvador officially became the first country to start accepting Bitcoin as fiat money along with the U.S. dollar. President Bukele predicted that two more countries will join El Salvador in 2022 and will adopt Bitcoin as legal tender.

Bukele has implemented “buying from the dip” in terms of strategy, and El Salvador has accumulated over 1,390 Bitcoins so far, according to the latest official data.

As reported by Blockchain.News on November 22, El Salvador’s President, Nayib Bukele, has unveiled the country’s plans to build the first fully functional Bitcoin city. This project is billed to be funded by a Bitcoin-backed, government-issued bond.

Bukele’s administration has pressed on building the first Bitcoin schools from the proceeds earned by HODLing, the premier digital currency.

The Central American country also airdropped the digital currency to the public, encouraging them to use the crypto wallet-Chivo. However, due to technical obstacles, 50 Salvadoran citizens have lost a total of more than 96,000 US dollars in December.

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El Salvador Buys 21 BTC To Mark Special Day

Central American nation El Salvador purchased 21 Bitcoins (BTC) on December 21, 2021, to mark the 21st day of the 21st year of the 21st century.

In a series of Tweets, El Salvador’s President Nayib Bukele pointed out that the event commensurates with Bitcoin’s total supply of 21 million as well as the country’s land area of 21,000 square kilometres.

The country’s latest investment is worth $1.02 million based on the price of BTC pegged at $48,916.61 at the time of writing according to CoinMarketCap. At present, El Salvador is HODLing a total of 1,141 BTC worth over $5.58 million. Under President Bukele, El Salvador has a number of ambitious plans some of which are already being manifested.

The country became the pioneer in accepting Bitcoin as its legal tender back in September and following the first investment in 200 BTC at the time, El Salvador became the first country to hold the nascent asset class using sovereign national funds. The country’s ambitious plans are also centred on full-blown Bitcoin mining, using geothermal energy from the nation’s volcanoes. 

Despite the fact that the majority of key stakeholders and citizens do not support the President’s approach to the Bitcoin legalization process, his efforts in putting profits from holding Bitcoin is likely to appease more people who will eventually back the Bitcoin initiative. Some of the recorded dividends profits from holding Bitcoin have been invested into the construction of 20 schools as well as the planned establishment of a veterinary hospital.

The country has also planned to build a Bitcoin City by raising a Bond instrument. The city will be a green region in which Bitcoin will feature prominently as both a legal tender and as a theme for a central mall that will be built in the shape of the symbol of the top digital currency.

In all of its strides, El Salvador is setting the pace for other nations looking to adopt or legalize Bitcoin as a legal tender.

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IMF Report On El Salvador Is Positive… Except For Everything Bitcoin-Related

In a recent report, the IMF praises the way El Salvador handled the COVID-19 situation and announces their economy grew 10% in 2021. The International Monetary Fund also recognizes El Salvador’s government efforts to reduce crime, “diversify the energy matrix, foster economic diversification, and enhance financial inclusion.” However, when it comes to Bitcoin, the IMF is completely against it. As they should. Because Bitcoin renders them irrelevant.

But first, about the report titled “El Salvador: Staff Concluding Statement of the 2021 Article IV Mission

“A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement.”

Anyway, let’s go to the IMF’s wacky opinions about Bitcoin.

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What Does The IMF Think About Bitcoin As Legal Tender?

After praising El Salvador’s efforts to foster “financial inclusion and raise growth,” the IMF attacks the very tool that the country’s government is using to accomplish that.

“Given Bitcoin’s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability. Its use also gives rise to fiscal contingent liabilities. Because of those risks, Bitcoin should not be used as a legal tender. Staff recommends narrowing the scope of the Bitcoin law and urges strengthening the regulation and supervision of the new payment ecosystem.”

Translation: The IMF can’t even think of one good reason for Bitcoin not to be legal tender. One Bitcoin is one Bitcoin. The cryptocurrency’s volatility is intrinsically related to the assets we compare it with. In this case, the US Dollar. It’s also important to remember that Bitcoin is legal tender in El Salvador ALONGSIDE the US Dollar. If people don’t want volatility, they can easily exchange all of their money into US Dollars. 

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The IMF also conveniently ignores the fact that Bitcoin’s volatility can bring positive results for its users. And that their other option, the US Dollar, is going through an inflationary period like no other. Plus, when the US government prints more money, its citizens get certain benefits out of it. But El Salvador doesn’t. A Dollarized country that’s not in control of the money printer gets its purchasing power decreased by relentless inflation, but doesn’t get the airdrops and inorganic money artificially stimulating the economy.

Does The IMF Have Any Other Advice?

Of course, they do. After praising financial inclusion, the IMF recommends implementing the exact same measures that keep 70% of El Salvador’s population out of the financial system.

“Stronger regulation and oversight of the new payment ecosystem should be immediately implemented for consumer protection, anti-money laundering and counter financing of terrorism (AML/CFT), and risk management.”

Why are people in El Salvador unbanked? Do they think it’s by choice? Is the IMF unaware that their outdated and inefficient methods are causing the bottleneck? Bad actors have incentives to bypass AML and KYC procedures. They do it with ease. Normal people can’t produce all those documents. And for banks, the cost of processing all that data makes acquiring a new client expensive. There are no incentives to serve the lower-income population.

“Recently announced plans to use the proceeds of new sovereign bond issuances to invest in Bitcoin, and the implications of trading more broadly in Bitcoin, will require a very careful analysis of implications for, and potential risks to, financial stability.”

Translation: What’s all this about a Bitcoin City?!!!!! And they’re building a pet hospital?! ALERT! ALERT!

The US Pauses Relations With El Salvador

In semi-related news, Reuters informs that U.S. Chargé d’Affaires Jean Manes said in local TV that relationships between the two countries are on hold. “Obviously we’re on a bit of a pause because the government of El Salvador is not giving a signal that it has an interest in our relationship,” she said. “On behalf of the White House, the State Department, we’ve offered a bridge, and the (Salvadoran) government decided not to take it. As far as we’re concerned, we’re interested in having the best relationship with El Salvador.”

Sure, Manes. That sounds totally believable. Nothing suspicious here.

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El Salvador to Build the World’s First Bitcoin City, Funded by Bitcoin Bonds

In yet another move to showcase its love for Bitcoin, El Salvador’s President, Nayib Bukele, has unveiled the country’s plans to build the first fully functional Bitcoin city. This project is billed to be funded by a Bitcoin-backed, government-issued bond. 

A City Where Everything Works

Speaking at the Bitcoin Week Conference, President Bukele revealed the details of the plans for building up the Bitcoin City that the country targets to boost the awareness of Bitcoin of the citizens and enjoin adoption. Bukele conceived Bitcoin City as a perfect one where everything works.

“In #BitcoinCity we will have digital and technological education. Geothermal energy for the entire city and efficient and sustainable public transport,” he said in a statement.

The major forms of taxes being paid in the country, including income tax, capital gains tax, and property tax, will not be collected from residents of the city who transact using Bitcoin or any digital asset. According to the President, only Value Added Tax will be levied, and 50% of this will be used in paying the municipality’s bonds.

The estimated amount to be pulled from the bonds is $1 billion and will be hosted on the Bitfinex Securities Platform. The duo of Bitfinex and Blockstream will support the El Salvador Bitcoin City project. With these firms and the grand forecast for the project, industries are expected to proliferate in El Salvador in the coming years.

“[The platform] will soon be home to many local and foreign digital assets offerings developing new digital asset regulation for the country! El Salvador, Bitfinex, and Blockstream are making history together,” said Bitfinex CTO Bitfinex Paolo Ardoino.

Blockstream’s chief security officer Samson Mao said at the conference that the chances of sourcing $1 billion from Bitfinex’s ecosystem of investors are very high. Mao also pointed out that the first half of the bond, worth $500 million, will be subjected to a 5-year lock-up period and will significantly impact the growth in the price of BTC.

El Salvador is Trailing the Blaze

Since legalizing Bitcoin as an official legal tender in September, El Salvador has set a very good example of how BTC can be used for the greater good. While the process leading up to the launch of the coin in the country was met with some resistance, according to polls. President Nayib Bukele’s government has pressed on building the first Bitcoin schools from the proceeds earned by HODLing, the premier digital currency.

While many countries are tagged to be planning a similar embrace, El Salvador’s milestones will be the standard to emulate for countries looking to trail a similar path.

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