El Salvador Volcano Bond
Bitcoin city?
El Salvador is issuing a $1 Billion Bitcoin bond set for March 15-20. El Salvador is looking to change the macro landscape of competition. They no longer want to take out loans from central banks, like the IMF, in which they have to follow their set of rules of how they should spend their money. The rules are complicated when it comes to smaller countries. Small countries have to pay a portion of the loan back before spending it because the central banks want to be insured on payments. The interest payments are high. To spend the money received by the banks, they have to inform the central bank in detail of how the money is being spent, which does not give much flexibility to the country to operate.
It is interesting to see Salvadorean President Nayib Bukele following the bond approach to fund a Bitcoin City Project planning.
Inside the Volcano Bond
it will pay an annual interest of 6.5% to the lenders
$500 Million is going to be used for Bitcoin mining and developing renewable energy from volcanoes
$500 Million to buy more Bitcoin
Where El Salvador Stands
The country holds up to 1,801 Bitcoin on its balance sheet or reserves. That is worth $66 million as of the end of January.
In June 2021, Bukele adopted Bitcoin as legal tender.
the laid claim that accepting Bitcoin as Legal tender would bring the unbanked citizens into the economy
He is putting the countries debt on the line if Bitcoin fails to produce. Bukele is placing the risk on Bitcoin to champion over the central banks. When Bitcoin reached an all-time high of $69,000 in November, that 1,801 Bitcoin would have been worth $124 Million.
The country already has an existing traditional bond. Its next deadline is $800 million repayments due in January 2023
Bond vs. Loan
Generally, when a company needs to raise money to expand operations, they can through a bond or long-term loan agreement. A company borrows money to agree upon repayment with interest added on top. Essentially, the claim is lower on bonds compared to long-term loans handed on by central banks. If the significant bank loans $10 Million to a company with 15% interest, it would be more convenient for a company to issue a bond looking to raise $10 Million by giving out a 7% interest to those lending the money to them. Except within a bond, you can extend the cash with more leeway and flexibility on how the funds will be spent.
Macro Game Theory
Bitfinex is said to be the book runner for the bond. The bonds are set to be issued in $100 increments. To allow “democratize access.” The Bond will also be traded 24/7 due to Bitcoin and stablecoins, like Tether.
Blockchain technology company, Blockstream; with chief strategy officer Samson Mow, is issuing the bonds on behalf of El Salvador.
THIS YEAR, the IMF came out to say that it had both “economic and legal concerns about El Salvador making Bitcoin legal tender.”
The $1 Billion Bond is said to be over-subscribed. In part gives El Salvador another opportunity to raise another $800 Million for those looking to lend to El Salvador through a second Volcano Bond.
El Salvador has to hold the $500 Million Bitcoin purchased from the Bond for five years before taking a profit/selling in the Bond contract. Once those five years have passed, it can give the bondholders a bonus on top of the 6.5% interest annual payment.
El Salvador has roughly 317 volcanoes in its land in which most of the volcanoes have not been touched to start producing geothermal energy from those volcanoes. At the same time, they will be mining Bitcoin with volcanoes producing the energy source at zero cost. In turn, with Bitcoin mining, it can sell off those Bitcoin to pay off debt and the interest to its bondholders.
Bitcoin Miners made more than $15 Billion in revenue throughout 2021; it is a vast market where El Salvador will be competing which naturally drives the price of Bitcoin up.
Also, with the excess energy produced from the volcanoes, Salvadorean President Bukele is looking to export energy/power to nearby countries to further expand El Salvador's growth in exportation.
El Salvador will pay off its debt in less than five years. It also prompts other countries nearby to follow the same example as El Salvador. As mentioned, Argentina is protesting in repaying the IMF. Every country and citizen is looking to be Sovereign from central banks or government. Some countries want to be left alone and not become a slave to debt.
Ladies and gentlemen, this is the game theory, in which El Salvador is a better chance at wiping its debt than the United States, which sits at $30 Trillion. This small country can grow faster than the US without raising debt and devaluing their currency because once they produce enough energy to export and start mining Bitcoin, it is game over.
I am rooting for El Salvador. Let them become a free nation and not a slave to central banks. In which debt makes you do immoral actions. The IMF can cry harder, but it will not stop El Salvador.
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