El Salvador aims to establish the world’s first “Bitcoin City,” 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 also claimed the Bitcoin city planned in the eastern district of La Union would get geothermal power from a volcano. It would likewise not impose any taxes except the value-added tax (VAT). It was during an event that wrapped up a week-long promotion of bitcoin in El Salvador.
“Invest here and make all the money you want,” Bukele said. He was dressed all in white and wearing a reversed baseball cap. It was in the beach resort of Mizata. “This is a fully ecological city that works and is energized by a volcano.”
Bukele estimated that the public infrastructure would then cost roughly 300,000 bitcoins. Half of the VAT levied would be useful to fund the bonds issued to develop the city. The other half would be beneficial for services such as garbage collection.
El Salvador: First country to accept Bitcoin as legal cash
El Salvador became the first country in the world to recognize bitcoin as legal cash in September.
Bukele is a popular president. But opinion polls reveal that Salvadorans are dubious of his enthusiasm for bitcoin. It has sparked anti-government protests due to its rocky launch.
Bukele said Bitcoin City would be circular, with an airport, residential and business sections. Also, a central plaza will look like a bitcoin symbol from the air. It will be like towns created by Alexander the Great.
“If you want bitcoin to spread over the world, we should build some Alexandrias,” said Bukele. He is a tech-savvy 40-year-old who in September proclaimed himself “dictator” of El Salvador on Twitter in an apparent joke.
“Volcano bond”
El Salvador planned to issue the first bonds in 2022, according to Bukele. Thereby, implying that it would be in 60 days.
The first 10-year issue dubbed the “volcano bond” will be worth $1 billion, backed by bitcoin. It will likewise have a 6.5 percent coupon, according to Samson Mow, chief strategy officer of blockchain technology provider Blockstream. He stated that half of the funds would use to purchase bitcoin on the open market. Other bonds would inevitably follow.
El Salvador will begin selling some of the bitcoin used to fund the bond after a five-year lock-up period. It is to provide investors with an “additional coupon,” according to Mow. He also believes the crypto currency’s value will continue to climb strongly.
“This is going to make El Salvador the financial center of the world,” he said.
The bond would issue on a bitcoin sidechain network known as the “liquid network”. El Salvador’s government is working on a securities law to help with the process. Bitfinex will get the first license to operate an exchange, according to Mow.
Crypto exchange Bitfinex was also pitched as the book runner for the bond on a presentation behind Mow.
According to Mow, once ten of these bonds come into being, $5 billion in bitcoin will eliminate from the market for several years. “And if you get 100 more countries to do these bonds, that’s half of bitcoin’s market cap right there.”
According to Mow, the “game theory” on the bonds also provided initial issuer El Salvador an advantage. He says: “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.”
