El Salvador: “Volcano Bonds” Ready Eruption

El Salvador will issue Bitcoin bonds, or “volcano bonds,” in the first quarter of 2024 after receiving regulatory approval from the Digital Assets Commission (CNAD).

The initiative is expected to help form part of the so-called Bitcoin City project, which will include a special tax-free zone in the capital city, La Unión, and be powered by thermal energy from a volcano.

Of the $1 billion issuance, part of this would be converted into Bitcoin. Financing will also be provided for cryptocurrency mining and other vital services including health and education.

“We anticipate that the bond will be issued during the first quarter of 2024. This is just the beginning of new bitcoin capital markets in El Salvador,” says the National Bitcoin Office (ONTBC) on its X (formerly Twitter) social media account.

President Nayib Bukele announced the Bitcoin City concept in 2021. The original plans were for the volcano bonds to reach market in early 2022. However, former Minister of Finance Alejandro Zelaya delayed the launch.

In December, Bukele revealed that the country would make a profit of $3.62 million if it sold its Bitcoin holdings, but there are currently no plans to sell.

Volcano bonds will be placed on the Bitifinex Securities Platform, which will launch Bitcoin-based capital markets in El Salvador. In March 2022, Financial Times magazine revealed that the bond issuer would be LaGeo, the state geothermal company.

Reports from 2021 suggest a 10-year tenure with a yield of 6.5% for the scheme.

Bukele disagrees with the International Monetary Fund (IMF) over a potential financial assistance program as well as the use of Bitcoin as legal tender. The president has accused the IMF of interference in sovereign decisions.

To encourage cryptocurrency investment in El Salvador, a scheme offering 1,000 passports a year has been revealed. It will be open to Bitcoin patrons with a portfolio of over $1 million.

Under a program, “Adopting El Salvador,” applicants will be able to request a “Freedom Visa.” “The program’s application process is streamlined to encourage visionary contributions to El Salvador’s economic development, cultural enrichment, and societal upliftment,” says a government statement.