Lawmakers in El Salvador have greenlit a law that could facilitate the country’s long-standing Bitcoin bond initiative.
El Salvador has taken a monumental step toward adopting and issuing the first-ever sovereign Bitcoin (BTC) bond. On Wednesday, Bloomberg reported that the Central American nation’s Congress recently approved a digital securities law potentially underpinning Bitcoin bond sales. This law allows El Salvador to generate funds through the world’s first sovereign Bitcoin bond. The bill, which secured an overwhelming 62 Congress votes in favor, will head to El Salvador President Nayib Bukele for signing.
16 Congress members voted against the proposed El Salvador Bitcoin bond law.
El Salvador Bitcoin Bond Law
Also known as the Volcano bond, the bill constitutes a legal framework that underscores Bukele’s intentions to sell blockchain bonds. In addition, the securities could raise $500 million to help establish a tax-free coastal town called Bitcoin City. The El Salvadoran government intends to situate Bitcoin City at the foot of a volcano, where it would draw geothermal energy. This natural resource would provide the energy required to mine digital coins at the site.
Meanwhile, the government’s proposal also includes another $500 million to purchase BTC. Bondholders would also be privy to any appreciation in the leading digital currency.
The proposed Bitcoin bond law has come under criticism by credit ratings agencies and the International Monetary Fund (IMF). Meanwhile, El Salvador’s sovereign bonds are trading at a discount to peers as investors factor in the risk of default.
Bitcoin Journey So Far
In 2021, the nation of El Salvador became the first in the world to adopt Bitcoin as legal tender. Shortly afterward, Bukele intimated plans for the volcano bond during a presentation to BTC enthusiasts in November 2021. According to the government’s initial proposal, the tokenized bonds would see a US-dollar denomination and pay 6.5% annually for 10 years.
El Salvador planned to raise $1 billion in BTC-backed bonds in the first quarter of 2022. At the time of the announcement, Bitfinex chief technology officer Paolo Ardoino said the exchange would play a pivotal supporting role. This role would entail the establishment of a securities platform to hold El Salvador’s Bitcoin bonds. Ardoino also added at the time:
“[The platform] will soon be home to many local and foreign digital assets offerings developing new digital asset regulation for the country! El Salvador, Bitfinex, and Blockstream are making history together.”
However, the bond issuance saw several postponements due to the brutal crypto market downturn that characterized much of 2022. On separate occasions in March and June last year, El Salvador finance minister Alejandro Zelaya announced the postponements. At the time, Zelaya said the Central American country would wait for a more favorable market environment. Furthermore, he stressed that Bitcoin’s price decline had hurt investor sentiments.
El Salvador finally paved the way for its Bitcoin bonds by introducing a digital assets bill last November. The country has shored up on BTC since it adopted the prominent crypto in 2021.
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