El Salvador Exploring Bitcoin Backed Bonds
El Salvador may use Bitcoin as a debt instrument to circumvent the need to take loans from the IMF. Neither this post nor any other on cryptofal.com should be taken as financial advice. It is not.
There are so many things that Bitcoin can be used for and they have been on full display in the last few months. The most important that we have seen being put to use is the permissionless nature of the network. For better or worse, we have seen that Russia has a way of accessing some sort of money even though they have been cut off from the SWIFT banking system. This has people thinking about how else it can be used to further revolutionize money.
El Salvador’s President, Nayib Bukele, is mulling the idea of “Volcano Bonds” which would be their iteration of a Bitcoin-backed bond. The name comes from the fact that they are going to use geothermal energy emitted from their inactive volcanos to mine BTC. This would be a much more “green” way of mining. This could also help prevent the economy from having to be rescued by the Internation Monetary Fund.
The goal of issuing Bitcoin-backed bonds is to lessen their dependence on the US dollar and loans from the IMF. The initial plan is for it to be a 10-year bond with an initial 6.5% return with a target of raising $1 billion. Half of this will go toward the infrastructure of building their “Bitcoin City” which will also be powered by volcanic geothermal energy. The other half will be invested into Bitcoin and the eventual capital gains distributed evenly between the country and bondholders.
The plans for this may take a little longer than Bukele originally intended as he sighted that he, as not many did, foresee the war between Russia and Ukraine. “We believe that between March 15 and 20 is the right timing; we have the tools almost finished. But the international context will tell us…I didn’t expect the war in Ukraine,” the President told reporters.
Michael Saylor also weighed in on the idea saying “I’d love to see a day where people eventually sell bitcoin-backed bonds like mortgage-backed securities. The market is not quite ready for that right now. The next best idea was a term loan from a major bank.” Microstrategy is also taking new steps to aid the advancement of Bitcoin by taking out a $205 million loan against their BTC to buy more BTC.
If El Salvador can pull this off, it will be not only a major accomplishment for the country but another major milestone for BTC as a whole. This would bring even more legitimacy and use case for the asset. As well as opening the door for other countries to take on the same type of idea as Central America continues to try and separate itself from the IMF. The train does not stop here as we are still in the early stages of adoption.
