Yes, you read that right. El Salvador plans to build the so-called “Bitcoin City”, a city exempt from taxes on income, property and capital gains. But for that you obviously need funding and this is where Bitcoin bonds come in. We tell you!
El Salvador continues to embrace Bitcoin with its eyes closed
This Saturday, during the BITconf, the President of El Salvador announced that he would initially finance Bitcoin City with the issuance of a billion dollars of sovereign bonds backed by Bitcoin.
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, Bitcoin City would seek to be carbon neutral.
This is how Bukele said, according to, “Invest here and earn all the money you want. It is a totally ecological city that functions and is energized by a volcano.
And, as we mentioned earlier, the city will only collect 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 has estimated that public infrastructure will cost around 300,000 BTC.
What will the bond issue look like?
El Salvador needed to find an ally who would take care of the Bitcoin bond issue and found him in Blockstream, a company specializing in Bitcoin services.
In this way, it is planned to issue US $ 1 billion of 10-year tokenized dollar-denominated bonds. In addition, those 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 Bitcoin infrastructure and mining powered by geothermal energy.
At the end of the 5-year lock-in period, the government will start selling its Bitcoins and pay an additional dividend to investors, according to Bloomberg. Additionally, 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 different parts of the world, allowing you to invest in small amounts up to $ 100.
Will these bonds be profitable?
It’s probably more than obvious that El Salvador’s latest move to a Bitcoin city is, to say the least, risky.
According to Blockstream’s presentation, their projections predict the bond’s annual yield to be 146%. However, this assessment is based on the fact that the price of Bitcoin continues to rise and reaches $ 1 million in five years.
In addition, they support this valuation of Bitcoin as this bond project alone will take $ 500 million of BTC out of the market in the first five years. The problem is, this is a risk associated with the volatility associated with Bitcoin. What if Bitcoin faces a correction right after the first five years?
However, this is not all. Mow, along with Bukele, assured all investors would be granted permanent residency and citizenship would be expedited.
Likewise, Mow assured that El Salvador’s plans would make it the “financial center of the world” and “the Singapore of Latin America”. In addition, he assured that it will be the start 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 bond issuance.
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 some dissatisfaction among the people of the country over the adoption of Bitcoin, the approval of the new law is probably just a formality.