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El Salvador plans first 'Bitcoin City', backed by bitcoin bonds

EconomyNov 22, 2021 08:06AM ET
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2/2 © Reuters. FILE PHOTO: El Salvador's President Nayib Bukele speaks during a ceremony to lay the first stone of Chivo Vet, a veterinary hospital financed with the gains El Salvador has obtained from its bitcoin operations, in Antiguo Cuscatlan, El Salvador November 1 2/2

(Corrects to show Blockstream executive Samson Mow talking about the possibility of 100 countries issuing bitcoin-backed bonds rather than 10 after company said he had misspoken and issued a correction)

By Nelson Renteria

MIZATA, El Salvador (Reuters) -El Salvador plans to build the world's first "Bitcoin City", funded initially by bitcoin-backed bonds, President Nayib Bukele said on Saturday, doubling down on his bet to harness the crypto currency to fuel investment in the Central American country.

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

"Invest here and make all the money you want," Bukele said in English, dressed all in white and wearing a reversed baseball cap, in the beach resort of Mizata. "This is a fully ecological city that works and is energized by a volcano."

Half of the VAT levied would be used to fund the bonds issued to build the city, and the other half would pay for services such as garbage collection, Bukele said, estimating the 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 https://www.reuters.com/article/el-salvador-bitcoin-idTRNIKBN2G308Z.

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

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

"If you want bitcoin to spread over the world, we should build some Alexandrias," said Bukele, a tech savvy 40-year-old who in September proclaimed himself "dictator" of El Salvador on Twitter (NYSE:TWTR) in an apparent joke.

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

Samson Mow, chief strategy officer of blockchain technology provider Blockstream, told the gathering the first 10-year issue, known as the "volcano bond", would be worth $1 billion, backed by bitcoin and carrying a coupon of 6.5%. Half of the sum would go to buying bitcoin on the market, he said. Other bonds would follow.

After a five year lock-up, El Salvador would start selling some of the bitcoin used to fund the bond to give investors an "additional coupon", Mow said, positing that the value of the crypto currency would continue to rise robustly.

"This is going to 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, El Salvador's government is working on a securities law, and the first license to operate an exchange would go to Bitfinex, Mow said.

Crypto exchange Bitfinex was listed as the book runner for the bond on a presentation behind Mow.

Once 10 such 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 of bitcoin's market cap right there."

The "game theory" on the bonds gave first issuer El Salvador an advantage, Mow argued, saying: "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."

El Salvador plans first 'Bitcoin City', backed by bitcoin bonds
 

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Comments (11)
Matt Brackley
Matt Brackley Nov 22, 2021 8:11AM ET
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sounds like a great way to default on debt without hurting the USD
Edward Chong
Edward Chong Nov 22, 2021 8:11AM ET
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haha that is true from this genius president.
Jack Zydron
Jack Zydron Nov 22, 2021 12:21AM ET
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this stupidity of bitcoin will end badly for many.
Nicholas Segalle
Nicholas Segalle Nov 21, 2021 9:28PM ET
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Literally can’t go tits up
johnny kay
johnny kay Nov 21, 2021 9:17PM ET
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everyone in this industry will be the laugh of the year soon
johnny kay
johnny kay Nov 21, 2021 9:09PM ET
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this is the worst idea lol
raz inski
raz inski Nov 21, 2021 8:48PM ET
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This guy is crazy
Darryl Allen
Darryl Allen Nov 21, 2021 8:42PM ET
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why would bitcoin reach $1M when it can be copy and pasted
Kevin Avila
Kevin Avila Nov 21, 2021 8:40PM ET
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Wow… way to setup your country for another major depression.
bert prince
bert prince Nov 21, 2021 5:34AM ET
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wow...el salvador pib is 24 bn$. this men is pledging the country future with a bet on bitcoin value in 10 years
Seshu Ram Namaste
Seshu Ram Namaste Nov 21, 2021 5:13AM ET
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migh be it will WORK!
Steffen vdm
Steffen vdm Nov 21, 2021 3:39AM ET
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he's a complete genius or a complete nutcase.
Edward Chong
Edward Chong Nov 21, 2021 3:39AM ET
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of cos genius cos he took the short cut to run a country and make it look good for folks.
Mir Chang
Mir Chang Nov 21, 2021 3:39AM ET
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