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El Salvador is most likely to launch its Bitcoin bonds ahead this week. Here are some of things that investors willing to participate should consider beforehand.
After six months of making Bitcoin a legal tender in the country, El Salvador prepares to launch its Bitcoin bonds this week. The tentative timing of the launch is anywhere between March 15 to March 20, said an official.
As per the previous reports, El Salvador is planning to raise $1 billion by issuing Bitcoin volcano bonds. The country further plans to use this money to pay off and restructure its debt. It will also buy Bitcoin and add it to the country’s treasury. As per previous plans, El Salvador plans to offer 6.5% annual interest with the bond purchase for a period of 10-years. It also seeks to distribute 50% of the Bitcoin price gains after a period of five years.
However, institutional players in the market have been watching this move with caution. Many prefer to stay on the sidelines and refrain from participation. Thus, a majority of buyers are likely to be retail players from within and outside El Salvador.
Also, embracing Bitcoin has proved little fruitful for El Salvador. Previously, the El Salvador government argued that it has got a large migrant workforce and Bitcoin would prove to be a cheaper way to send money home. But central bank data for January 2022 shows that only 2% of remittances came through Bitcoin digital wallet Chivo.
Furthermore, as per a Financial Times article, 70 percent of El Salvadorians have no trust in Bitcoin. Alejandro Jiménez, 23, who works in a call centre in the capital San Salvador said:
“I’m not really sure how to use it, it scared me that it goes up and down, it’s very volatile. It’s a pretty risky bet by our government.”
People Demand More Clarity With Bitcoin Bonds
Many analysts believe that President Nayib Bukele should make public the cost of the experiment. This also involves costs for setting up the digital infrastructure of the Chivo wallet. Ruth López, anti-corruption director at non-profit Cristosal said:
“The clearest government policy is opaqueness with public money. Especially in public purchases and the development of the ecosystem to back up bitcoin and the government app.”
However, during last month’s interview, El Salvador Finance minister Alejandro Zelaya assured of a “zero percent chance” of default on its sovereign funds. Note that ever since El Salvador has been hard peddling for Bitcoin, its sovereign bonds have dropped to junk status.
Furthermore, as per IMF, the country’s budget deficit could reach 5% which is worrying a lot of investors. Carlos Acevedo, a former president of El Salvador’s central bank said: “If this is a failure, a lot of doors close. This issuance is going to define a lot.”
El Salvador shall be issuing its Bitcoin bonds on the crypto exchange Bitfinex. Thus, Americans won’t be able to participate in bond-buying since they are prohibited from Bitfinex. But there are some natives who are excited about the project. Josué País, 36, owner of an El Salvador taxi business says he will be buying the Bitcoin bonds.
“The curiosity is what gets me. Number one, I’m going to do it to support the country. Number two, because it’s a big, attractive bet,” he said.