Back in 2021, El Salvador committed to an effort to reduce dependency on U.S. sponsored institutions like the IMF by becoming the first country in the world to adopt Bitcoin (BTC) as legal tender. To support this vision, president Nayib Bukele announced a $1 billion Bitcoin bond that would fund the construction of the nation’s own ‘Bitcoin City’, along with other crypto investments and projects.
Last week, El Salvador’s Finance Minister Alejandro Zelaya confirmed the timeline for the launch of the Bitcoin bond, which will be between March 15 and 20. However, the confirmation came with the disclaimer that geopolitical events (i.e. the ongoing Ukrainian-Russian conflict) may impact the schedule.
El Salvador’s $1 billion Bitcoin bond explained
The $1 billion Bitcoin bond proposal was first announced back in November 2021, when Bukele outlined the role it would play in El Salvador’s economic revival. He declared that half of the billion would go towards building energy and Bitcoin mining infrastructure, while the other half would be reinvested to grow El Salvador’s crypto assets.
Specifically, the first half of the proceeds would fund El Salvador’s ‘Bitcoin City’, a planned metropolis in the country’s south-eastern region of La Unión that would utilise geothermal energy from the nearby volcano to ‘mine’ digital coins.
The Bitcoin bond – dubbed the ‘volcano bond’ after the future metropolis’ power source – will be issued by state thermal energy company La Geo. The bond will also be developed on the Liquid Network (a Bitcoin Layer 2 scaling solution), and according to Zelaya, the use of Liquid will allow people to participate in the bond transaction with as little as $100.
Fast forward to 2022 and we have Zelaya’s announcement, televised via the Salvadorian TV Show ‘Frente a Frente’. “We are still finishing some details, it’s almost all ready. It’s a matter of timing also. It’s not so simple… This is a question of timing watching the market, we believe between March 15-20 the timing is adequate.”
Unfortunately, just like the overall crypto market, the bond has faced difficult headwinds due to Russia’s invasion of Ukraine.
“We have the tools almost finished. But the international context will tell us … I didn’t expect the war in Ukraine,” says Zelaya, acknowledging the current geopolitical crisis.
Betting big on Bitcoin
El Salvador has a lot of chips resting in Bitcoin and dubbing their bet as anything less than ‘massive’ would be an understatement. Carlos Acevedo, former president of El Salvador’s central bank, says that the bond’s issuance will define a lot, warning that a lot of doors will shut should it not pan out.
Fortunately, the crypto-loving president isn’t alone in his passion for Bitcoin. One fellow supporter is Josué País, the owner of a Salvadorian taxi business that accepts payments in BTC, who says that he plans to put about $200 into the bond when it launches. “Number one, I’m going to do it to support the country. Number two, because it’s a big, attractive bet.”
Thanks to people like País, El Salvador has reportedly already received $500 million in verbal commitments for the bond.
Another instance of El Salvador betting big on Bitcoin is when Bukele went out and funded the construction of El Salvador’s first Bitcoin-powered vet hospital; a hospital which offers cutting-edge healthcare for virtually free.
Significance of a date
It’s also interesting to note that the dates announced by Zelaya (March 15 to March 20) may have some significance behind them. This window overlaps with the scheduled Federal Open Market Committee meeting on March 15th and 16th. This is a meeting in which the U.S. Federal Reserve is expected to announce an interest rate hike to subdue the ongoing inflation in the U.S.
A rate hike will most likely result in panic selling throughout both traditional and crypto markets, therefore it’s probable that El Salvador’s scheduling was intended to guage general market mood before the launch of the bonds.