El Salvador has over half its Bitcoin bond covered… and it hasn’t even got the regulation to issue it
According to a report in the Financial Times, El Salvador, which a little over a year ago adopted Bitcoin as its legal tender, has over half a billion dollars in interest in its landmark Bitcoin-backed bond.
As the report states, Paolo Ardoino, chief technology officer at Bitfinex — which is set to provide the tech platform for the deal — said the crypto exchange has received “half a billion dollars” of interest from its users. Important details of the bond would need to be ironed out, requiring the passing of new securities laws in El Salvador, before potential buyers firmed up their interest, he added.
The hope is that these crypto bonds will allow El Salvador to invest half in Bitcoin, and use the other half to construct a crypto-friendly city. The latter is giving these bonds the nickname “volcano bonds,” as the town itself is marked to be built at the base of a volcano. Investors that buy into the 10-year Bitcoin bonds will get an annual interest rate of 6.5 per cent, as well as a share in any additional profit made from the investments into Bitcoin. This is significantly less than the existing 10-year dollar bonds in El Salvador, which yield over 20 per cent.
What is particularly interesting about these bonds is that it is not traditional investors that are expressing interest, but rather high-value crypto “whales” that are attracted to the ongoing development of crypto as an asset class.
More traditional investors are concerned that these bonds will further alienate El Salvador from the global markets and, critically, hurt its relationship with the IMF. The IMF has previously cautioned El Salvador on its flirtations with crypto assets – cautions that the nation and its crypto-passionate government subsequently rejected.
It just goes to show how willing crypto investors are to take a risk. Despite the legalities of the bonds still needing to be sorted through, the relatively low promised returns, and the concern of both traditional investors and the IMF, El Salvador already has enough interest backing it to be at the half-way point.