El Salvador is planning to issue its first bitcoin bond next month, the Central American country’s Finance Minister Alejandro Zelaya announced.
Zelaya elaborated that El Salvador is working to have the bond “totally ready” for issuance between March 15 and March 20 as a means to strengthen the country’s economy.
“If we really want to build this country, we have to invest in it like this,” Zelaya said speaking at a local news program.
Furthermore, Zelaya said that the government is still planning to issue $1 billion for the first bond, as previously mentioned on November 20. However, Zelaya also mentioned that there are chances of oversubscription for the bond by about $500 million minimum.
Buyers are expected to have easier access to the bond than traditional ones. It will allow a minimum purchase of $100 and does not require a stockbroker to conduct the transactions.
The bond will be issued on Blockstream’s Liquid Network sidechain and they “will comply with all the regulations of the financial markets,” such as know-your-customer (KYC) and due diligence practices.
The bitcoin bond idea was first introduced at an event on November 20, by El Salvador’s president Nayib Bukele and Blockstream chief strategy officer Samson Mow.
Fitch downgrades El Salvador into “Junk” level
However, Fitch Ratings – a top American credit rating agency – has downgraded El Salvador’s Long-Term Foreign-Currency Issuer Default Ratings (IDR) to ‘CCC’ from ‘B-‘, citing risks from its adoption of Bitcoin as legal tender last year, according to Bloomberg.
In a report, Fitch Ratings stated that the downgrade shows the country’s critical increase in financing risks that have risen from increased reliance on short-term debt.
“weakening of institutions and concentration of power in the presidency has increased policy unpredictability, and the adoption of bitcoin as legal tender has added uncertainty about the potential for an International Monetary Fund (IMF) program that would unlock financing for 2022-2023.”
Although crypto enthusiasts have been keen on bitcoin bonds, several financial experts have argued on the fact that whether they are a good investment.
The IMF recently noted that some of its directors “expressed concern over the risks associated with issuing Bitcoin-backed bonds.”
According to January 26, 2022, a report by Blokchain.News, the IMF expressed concern about risks related to El Salvador’s issuance of bitcoin-backed bonds. It urged El Salvador to terminate bitcoin as legal tender as soon as possible due to the high price volatility of the digital currency being a major risk.
El Salvador became the first country to adopt bitcoin as legal tender since June 2021, with 62 votes approval out of 84 through its parliament. In September, Bitcoin officially was circulated in this country as legal tender.
El Salvador’s dollar-denominated bonds have fallen to an all-time low as the Central American nation’s debt started trading in “distressed territory” this week.
El Salvador’s USD bonds fell to 64.4 cents to the dollar on Monday, Nov. 22, following the weekend news that the Central American country would use Bitcoin (BTC) bonds to fund its Bitcoin City initiative. Dollar bonds have fallen steadily since April 2021 when they topped $1.10 according to Bloomberg data.
A dollar-denominated bond is a bond issued outside of the United States by a foreign company or government, that is denominated in USD instead of their local currency.
Monday’s drop resulted in the country’s debt becoming among the worst performers in global trading, Bloomberg reported. Investors are concerned that President Nayib Bukele has shut out the IMF from assisting the nation with development funds.
Managing Director of investment banking company Stifel Nicolaus, Nathalie Marshik, commented that “this announcement cements the ‘anything-but-the-IMF’ path,” before adding that bonds are falling “as the market reassesses possible recovery value lower on the unpredictability of policies.”
The Bitcoin bond will pay 6.5% annual interest in addition to 50% of El Salvador’s Bitcoin gains once its initial investment costs for its mining infrastructure have been recovered. Dividends will be paid in USD or Tether (USDT), according to Samson Mow, Blockstream’s Chief Strategy Officer.
Mow believes that the Bitcoin bond will be an alternative way for institutional investors to gain exposure to Bitcoin without having to hold Bitcoin themselves. It will also be a way for investors to help El Salvador develop more rapidly. Mow, who has been working with the El Salvador government on developing the Bitcoin bond, told Bloomberg TV on Nov. 23,
“We’re trying to structure this in a way that people can present [the Bitcoin bond] to boards and directors as a normal bond because it is a normal bond. It just happens to have a large chunk of Bitcoin tied in.”
In response to Mow’s interview with Bloomberg, Podcaster and popular Bitcoin advocate Anthony Pompliano predicted that they will be “ridiculously oversubscribed.”
PREDICTION: The El Salvador bitcoin bond will be ridiculously oversubscribed pic.twitter.com/2Kj0urm0SN
— Pomp (@APompliano) November 23, 2021
El Salvador has been in talks with the International Monetary Fund (IMF) for much of 2021 over a possible $1.3 billion loan. Those talks could be fading into obscurity as President Bukele has decided to fund more local initiatives, such as school building, with Bitcoin over USD.
Related:El Salvador to build 20 ‘Bitcoin Schools’ with surplus from Bitcoin Trust
The IMF issued a concluding statement regarding El Salvador’s funding request on Nov. 22. Although El Salvador’s economy has rebounded quickly from the pandemic, fiscal deficits and high public debt services are creating bigger holes in the services the country can provide, it stated.
The report added that efforts to improve financial inclusion and raise growth are welcome, “but risks arising from Bitcoin as a legal tender, the new payments ecosystem, and trading in Bitcoin should be addressed.”
“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.”
Banque de France, the Central Bank of France, commissioned a trial involving the settlement of treasury bonds using Central Bank Digital Currencies (CBDCs) in a blockchain-backed environment.
Local media reported the trial is conducted by a consortium of 500 financial institutions led by Euroclear, also include counts Agence France Trésor, BNP Paribas CIB, Crédit Agricole CIB, HSBC, and Societe Generale as members.
IBM designed the blockchain environment for testing the Treasury Bonds. The trial features securities issuance, primary and secondary market trades, liquidity optimization mechanisms like repo, and interest payments. Throughout the test, up to 500 instructions cutting across both primary and secondary markets were recorded. Isabelle Delorme, a deputy CEO of ESES CSDs Euroclear, said:
“Together, we have been able to measure the degree to which the issuance of CBDC can offer fast and secure settlement of tokenised securities. We are well aware that there are still challenges that need to be overcome before we can envisage the implementation of blockchain platforms in production as we continue to investigate all routes to drive efficiencies for our clients,”
As one of the frontline nations in the European Union and a G7 key member, France has been doing all it can to chart a viable course for its embrace of CBDCs, and blockchain technology as a whole. The Euroclear-backed CBDC-Treasury Bond settlement was a part of the Central Bank’s initiative to explore the integrative capabilities of an eventual CBDC on the country’s core financial markets.
Many countries are also testing out the capabilities of their proposed CBDC issuance, in a bid to prepare all necessary environments for the new form of money to integrate easily into existing financial and economic terrain. China is amongst the nations with advanced CBDC trails, as it has conducted small-scale retail transactions for its proposed Digital Renminbi. Other nations with noteworthy CBDC trials include but are not limited to Switzerland and Lithuania.
Coinbase’s sale of a junk bond with a total value of $1.5 billion shows that cryptocurrencies have gradually become mainstream.
Coinbase is expected to sell $1.5 billion in bonds. However, Moody’s Investor Services, a world-renowned credit ratings institution set Coinbase Global Inc.’s debt issuer rating to non-investment grade or junk grade mainly due to the uncertain regulatory environment and future competition.
Several analysts from Moody’s Fadi Abdel Massih, Donald Robertson, and Ana Arsov wrote in a report on Tuesday:
“Coinbase’s financial profile suggests investment-grade credit strength, but for now the uncertain regulatory environment and fierce competition offset these strengths.”
Coinbase sells two types of bonds, 7-year bonds due in 2028 at a coupon rate of 3.375% and 10-year bonds due in 2031 at an interest rate of 3.625%.
An industry research analyst from Bloomberg said Julie Chariell said that:
“The strong demand is clearly a big endorsement by debt investors.”
This bond issuance is a favourable event for the entire cryptocurrency industry and Coinbase. This product allows investors to directly participate in the benefits of cryptocurrency without investing in cryptocurrency and earn interest from it.
Since the bonds are one grade lower than the investment grade, Coinbase did not get the lowest borrowing cost. Generally speaking, the average yield of similarly-rated bonds is about 2.86%, which is lower than the interest rate of more than 3% this time.
Coinbase is not the first U.S. marketer to issue cryptocurrency-related bonds. As early as June of this year, MicroStrategy Inc. announced that the company plans to offer $400 million of senior secured notes to qualified institutional buyers to raise more capital to make more Bitcoin purchases.
As reported by Blockchain.News yesterday, Nasdaq-listed cryptocurrency exchange Coinbase Global Inc has announced its plans to raise new capital by issuing $1.5 billion aggregate principal amount of its Senior Notes to potential investors.
Tokenized risk protocol BarnBridge (BOND) continues to innovate in the DeFi sector. Via their Twitter handle, this project has announced a new partnership to integrate with the Chainlink Keeper Network, a solution that enables smart contracts to be Upkeep by Keeper nodes, on Ethereum mainnet.
In other words, BarnBridge can overcome its smart contract limitation, and specify the conditions that will trigger it with more efficiency. Thus, the protocol can offer its users a product called “SMART Exposure”.
This will provide investors with a convenient way to obtain a fixed exposure ratio to an asset pair, according to an official post.
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This exposure is managed by a novel, cost effective re-balancing mechanism. BarnBridge will leverage the Chainlink Keeper network to automate our rebalancing function in a decentralized, high-uptime, and cost-effective manner.
The SMART Exposure will aid investors to maximize their profits and time by mitigating the complexity of maintaining a “specific risk exposure” to an ERC-20 token trading pair.
According to the post, if an investor has a 75% ETH and 25% wBTC allocation on BarnBridge, the product automatically rebalances the position if there price fluctuations in the underlying assets. In doing so, the investors maintain its exposure ratio without direct intervention.
This provides investors with a convenient way to pursue a risk-adjusted strategy without the hassle of continuous and time consuming management of your token exposure.
Source: Pavlo Bendus
How Does The SMART Exposure Operate on BarnBridge?
In order to leverage this product, users must set a target exposure ratio. If a trading pair deviates from the threshold, Chainlink Keppers will “initiate the rebalancing transaction”. The protocol’s team claims that Chainlink provides “strong guarantees” of the functionality of its rebalancing mechanism.
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In addition, the implementation of this Chainlink-based solution will outsource traditional maintenance tasks. The protocol cites 4 specific advantages of the integration: High Uptime; low costs, the Keepers operate with gas optimizing features; decentralized execution, Chainlink’s pool of Keepers nodes its transparent and secure contract automation, and expandable computation.
The latter guarantees that all computations are performed off-chain. The data obtained with the solution is verified by Chainlink and can be leveraged by developers to enhance their dApps and build better products.
Source: Pavlo Bendus
BarnBridge CTO and one of its co-founders Milad Mostavi claimed to be excited about the integration with Chainlink Keepers. Mostavi believes the protocol has taken another step into decentralizing its execution with a reliable and “battle-hardened” network. He added:
Not only will Chainlink Keepers provide strong liveness guarantees to key contract functions that directly impact user portfolios, but it will save the BarnBridge team considerable time and resources by not having to do this work manually.
At the time of writing, BOND trades at $35,43 with small profits in lower timeframes and an 18.2% profit in the daily chart. This token has been following the general market sentiment but shows better performance after exchange Binance announced its listing.
BOND trends upwards after Binance listing. Source: BONDUSDT Tradingview
Data from Cointelegraph Markets Pro and Tradingview showed further downward pressure for BTC/USD on Wednesday, compounding a comedown that began late on Sunday.
While not plugging the week’s lows at nearer $53,000, the latest dip to $54,425 on Bitstamp underscores Bitcoin’s correction after hitting all-time highs of $61,700.
The weakness came in tandem with strength on U.S. bond yields, a classic drain on BTC performance. On-chain metrics showed broad strength, however, while derivatives funding rates also cooled, fueling bullish sentiment beyond spot price action.
“Bitcoin will continue to rise and rise in the foreseable future — we don’t need charts or technical analysis to tell us what is painfully obivous,” trader Scott Melker forecast in a fresh YouTube update.
BTC/USD (blue) vs. 10-year U.S. bond yields (orange) chart. Source: Tradingview
“People are increasingly interested in buying Bitcoin as a hedge against central bank behavior and infinite money-printing, while at the same time, supply is rapidly exiting the market.”
“I bought more BTC at 56,500. Just in case anyone was wondering if I’m still bullish,” Galaxy Digital CEO Mike Novogratz added on the day in another example of investor optimism.
At the time of writing, BTC/USD was circling $55,000 as a slight return to form kept the pair from testing deeper lows.
“We’ll only see further downside once $BTC loses ~$55,000,” popular Twitter account Rekt Capital argued, adding to recent Cointelegraph analysis.
BTC/USD buy and sell interest (Binance). Source: Material Indicators
Long-term bond warnings compound
On the topic of institutional involvement, meanwhile, this week was tipped by Bitcoin investment firm NYDIG to bring significant announcements from prospective large-volume corporate investors.
In an episode of the On The Brink podcast recorded on March 10, CEO and co-founder NYDIG Robby Gutmann removed any doubt that the institutional scene was about to transform.
“I think — I don’t think, I know — starting more or less next week, you’re going to see an absolute drumbeat of pretty game-changing milestone from some of these firms that are really going to mark each progressively new point in Bitcoin adoption, Bitcoin availability, Bitcoin products and services within the existing traditional financial landscapes,” he said.
As Cointelegraph reported, meanwhile, the topic of bonds has gained attention from several high-profile sources. This week, it was billionaire Ray Dalio which warned investors to stay away from dollar-denominated targets, with MicroStrategy CEO Michael Saylor championing Bitcoin as the answer.
Several other markets including the gold, bond, and stock markets are interrelated with its performance.
The Biden administration’s decision to introduce a new stimulus package could also affect the crypto market.
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Bitcoin and technology stocks rallied this week, recouping from losses due to rising bond rates. Along with changes in the bond and gold markets and new upcoming stimulus rounds, there are five important macroeconomic movements affecting Bitcoin.
The Bond Market
On a global macro-level, Bitcoin’s positive outlook began with the“reflation trade” in bond markets.
The market can track the reflation trade using the yield curve indicator, whichmeasures the difference between long-term bond yields and short-term contracts.A steeper yield curve indicates the market’s expectations of high inflation in the future.
The bond market’s ten-year-yield has tripled from a low of 0.52% in August. Additionally, short-term expectations are still low due to the prevalent effects of COVID-19 shock. Hence, rising yields have threatened to move value away from other assets.
U.S. bond market yield curve. Source: Statista
The U.S. Stimulus and Inflation
In the United States, the Biden administration is days away from ratifying a third economic stimulus package of $1.9 trillion. The government passed $3.4 trillion worth ofstimulus packagesin 2020.
The new stimulus round is likely to spark inflationary fears. However, the U.S. dollar has been in an uptrend thanks to the rising yields of long-term bonds. The dollar index (DXY) against other fiat currencies broke above the $90.50 resistance to a high of $92.50.
U.S. dollar index (DXY) price chart. Source: Trading View
However, DXY corrected this morning by 0.28% after bond market sell-offs slowed down. Liquidity is now flowing out from the dollar again, which has restarted the devaluation trade.
The Stock Market
The correlation between Bitcoin and the stock market increased towards the end of February. The U.S. dollar’s strength from the bond markets hurt stocks and Bitcoin’s value slightly in early March.
Bitcoin and S&P 500 Correlation Coefficient. Source: Trading View
Bitcoin has defied gravity during the reflation narrative. The alpha cryptocurrency has regained $1 trillion market capitalization with a price pushing towards $55,000. In the absence of a negative catalyst, the uptrend is likely to continue for stocks and Bitcoin.
The NASDAQ composite index and S&P 500 index are trading in the green as well. NASDAQ’s stock (NDAQ) has risen by 9.5% after closing last week at a new all-time high of $149.50.
The Gold Market
Markets have given mixed signals regarding inflation expectations. While bond markets are expecting inflation, the price action of gold shows no worrying inflation signals.
Gold, the world’s oldest inflationary hedge, has been on a downward trend, losing support at $1790 per ounce to lows of $1675.
Nevertheless, gold prices gained 2% this morning to reach a high of $1720, so there is some reason for optimism.
The Reflation Narrative
Gold’s price action is a reaction to the bond markets and the beginning of the reflationary trade. It represents a market exposed to faster economic growth, price pressures, and higher yields in an attempt to revive from an economic crisis.
Fears around Bitcoin’s price have raised concerns the possibility that the asset is in a “bubble,” and the possibility that the deviation from the institutional investment narrative.
Alex Kruger, an independent analyst, told Crypto Briefing that concerns are unwarranted, noting that “an object can move against the wind for as long as the wind is not too strong.”
According to Kruger, there is more than one force affecting Bitcoin’s price right now. While the short-term movements in bond markets have created a headwind for Bitcoin investment among institutional investors, those forces could be temporary.
Disclosure: The author held Bitcoin at the time of press.
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You should never make an investment decision on an ICO, IEO, or other investment based on the information on this website, and you should never interpret or otherwise rely on any of the information on this website as investment advice. We strongly recommend that you consult a licensed investment advisor or other qualified financial professional if you are seeking investment advice on an ICO, IEO, or other investment. We do not accept compensation in any form for analyzing or reporting on any ICO, IEO, cryptocurrency, currency, tokenized sales, securities, or commodities.
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The information on or accessed through this website is obtained from independent sources we believe to be accurate and reliable, but Decentral Media, Inc. makes no representation or warranty as to the timeliness, completeness, or accuracy of any information on or accessed through this website. Decentral Media, Inc. is not an investment advisor. We do not give personalized investment advice or other financial advice. The information on this website is subject to change without notice. Some or all of the information on this website may become outdated, or it may be or become incomplete or inaccurate. We may, but are not obligated to, update any outdated, incomplete, or inaccurate information.
You should never make an investment decision on an ICO, IEO, or other investment based on the information on this website, and you should never interpret or otherwise rely on any of the information on this website as investment advice. We strongly recommend that you consult a licensed investment advisor or other qualified financial professional if you are seeking investment advice on an ICO, IEO, or other investment. We do not accept compensation in any form for analyzing or reporting on any ICO, IEO, cryptocurrency, currency, tokenized sales, securities, or commodities.
Bitcoin’s long-term bullish outlook may have received further support from investors’ latest bet on the long-dated Treasury notes. The Wall Street Journal reported on Wednesday that investors believe that the Federal Reserve will start buying long-term US bonds after its next policy meeting in December. The divided outcome of the November 3 elections left investors […]
