Since Bitcoin was adopted as legal tender in El Salvador, the country has been devising innovative ways to integrate it into the economy. So much so that plans to build a "Bitcoin City" have also recently been announced . In fact, the same will be financed through a 1 billion dollar “Bitcoin Bond” with a 10-year maturity on Liquid Network.
The soon-to-be-issued Bitcoin bond, built by Blockstream and processed by Bitfinex, will offer investors an annual interest payment rate of 6.5% along with the dividends generated by the liquidation of Bitcoin holdings. Furthermore, the planned $ 1 billion will be split evenly between the allocation of BTC and the construction of energy and mining infrastructure in the region.
In a recent podcast , Bitcoin strategist Greg Foss shared his optimism about this move. In fact, he believes that the bond will be attractive to a variety of different investors. According to Foss, in addition to being a lucrative investment, the Bitcoin bond will help El Salvador "put more financing options on the table for a country that until now has been held hostage by the IMF."
El Salvador's credit worthiness has taken a hit this year , due in part to its decision to legally adopt Bitcoin. However, Foss argued that if the Bitcoin bond is protected or not allowed to be settled before a stipulated time, "Bitcoin City could have a much higher credit quality than El Salvador as a whole."
El Salvador against the IMF
Another component of the bond that could be attractive to investors is its focus on Bitcoin mining.
"There is a component that is sensitive to the price of Bitcoin, but in theory, the difficulty setting should allow miners to make money regardless of the price of Bitcoin."
However, if Bitcoin "does its thing" and rises higher, then the bond's appeal will multiply, Foss said.
“Those bonds will trade on the open market at a rate much higher than six and a half percent. They will trade at a lower yield at a higher price because the six and a half will be extremely attractive, so people will raise the price of those bonds and, conversely, the yield will decrease. "
In addition to being attractive to investors, Foss also asserted that the bond will help increase El Salvador's financing flexibility beyond the reach of a "restrictive" IMF.
"One of the things that is very restrictive about lending to a risky counterparty is that the lender makes sure that the borrower is a little limited in what they can do with the money."
A few days after El Salvador made the news of the Bitcoin bond public, the IMF issued a direct warning to the Central American nation citing "significant risks to consumer protection, financial integrity and financial stability" due to price volatility. of Bitcoin.
He also added that Bitcoin could increase the country's tax contingent liabilities, which are losses that could be incurred in the future due to the occurrence of specific events.
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