El Salvador plans first “Bitcoin City”, backed by bitcoin bonds

MIZATA, El Salvador, November 20 (Reuters) – (This November 20 story is corrected to show Blockstream leader Samson Mow talking about the possibility of 100 countries issuing bitcoin-backed bonds instead of 10 after the company said it was wrong and posted a correction.)

El Salvador plans to build the world’s first “Bitcoin City”, initially funded by bitcoin-backed bonds, President Nayib Bukele said on Saturday, doubling his bet to mine cryptocurrency to fuel investments in the country. Central America.

Speaking at an event closing a week of bitcoin promotion in El Salvador, Bukele said the planned city in the eastern region of La Union will get geothermal power from a volcano and will not levy any taxes except value added tax (VAT).

“Invest here and earn all the money you want,†said Bukele in English, dressed in white and wearing an inverted baseball cap, in the resort town of Mizata. “It is a completely green city that functions and is powered by a volcano.”

Half of the VAT levied would be used to finance bonds issued to build the city, and the other half would pay for services such as garbage collection, Bukele said, estimating that public infrastructure would cost around 300,000 bitcoins.

El Salvador in September became the first country in the world to adopt bitcoin as legal tender.

Although Bukele is a popular president, opinion polls show Salvadorans are skeptical of his love of bitcoin, and his bumpy introduction has fueled protests against the government.

Comparing his plan to the cities founded by Alexander the Great, Bukele said Bitcoin City would be circular, with an airport, residential and commercial areas, and would feature a central plaza designed to resemble a bitcoin symbol from the sky.

“If you want bitcoin to spread around the world, we should be building Alexandria,” said Bukele, a 40-year-old tech-savvy man who in September proclaimed himself El Salvador’s “dictator” on Twitter in a commentary. apparent joke.

El Salvador planned to issue the initial bonds in 2022, Bukele said, suggesting it would be in 60 days.

Samson Mow, chief strategy officer for blockchain technology provider Blockstream, told the rally that the first 10-year issue, known as the “Volcanic Bond”, would be worth $ 1 billion, backed by bitcoin and bearing a coupon 6.5%. Half of the money would be used to buy bitcoin in the market, he said. Other obligations would follow.

After a five-year block, El Salvador would start selling some of the bitcoin used to fund the bond in order to give investors an “extra coupon,” Mow said, claiming that the value of the cryptocurrency would continue to rise. strongly.

“This will 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, the Salvadoran government is working on a securities law, and the first license to operate an exchange would go to Bitfinex, Mow said.

The crypto exchange Bitfinex was listed as the bookrunner for the bond during a presentation behind Mow.

Once 10 of those 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 the market cap of bitcoin there.”

The bond “game theory†gave the top issuer El Salvador an edge, Mow explained, stating, “If bitcoin at the five-year mark hits $ 1 million, which I think they will sell bitcoin. in two quarters and get that $ 500 million back. “

Reporting by Nelson Renteria; Editing by Christopher Cushing and William Mallard

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