El Salvador aims to establish the world’s first “Bitcoin City,” first funded by bitcoin-backed bonds, President Nayib Bukele announced on Saturday, doubling down on his bet that the cryptocurrency will help the Central American country attract investment.
Bukele claimed the city planned in the eastern district of La Union would get geothermal power from a volcano and would not impose any taxes except the value-added tax during an event that wrapped up a week-long promotion of bitcoin in El Salvador (VAT).
“If you want bitcoin to spread over the world, we should build some Alexandria,” said Bukele, a tech savvy 40-year-old who in September proclaimed himself “dictator” of El Salvador on Twitter in an apparent joke.
El Salvador planned to issue the initial bonds in 2022, Bukele said, suggesting it would be in 60 days’ time.
Samson Mow, chief strategy officer of blockchain technology provider Blockstream, told the gathering the first 10-year issue, known as the “volcano bond”, would be worth $1 billion, backed by bitcoin and carrying a coupon of 6.5%. Half of the sum would go to buying bitcoin on the market, he said. Other bands would follow.
After a five-year lock-up, El Salvador would start selling some of the bitcoin used to fund the bond to give investors an “additional coupon”, Mow said, positing that the value of the cryptocurrency would continue to rise robustly.
“This is going to make El Salvador the financial center of the world,” he said.
The bond would be issued on the “liquid network”, a bitcoin sidechain network. To facilitate the process, El Salvador’s government is working on a securities law, and the first license to operate an exchange would go to Bitfinex, Mow said.
Crypto exchange Bitfinex was listed as the book runner for the bond on a presentation behind Mow.
Once 10 such bonds were issued, $5 billion in bitcoin would be taken off the market for several years, Mow said. “And if you get 100 more countries to do these bonds, that’s half of bitcoin’s market cap right there.”
The “game theory” on the bonds gave first issuer El Salvador an advantage, Mow argued, saying: “If bitcoin at the five-year mark reaches $1 million, which I think it will, they will sell bitcoin in two quarters and recoup that $500 million.”
