El Salvador, the first country to recognize bitcoin as legal tender, has passed landmark legislation establishing a legal framework for a Bitcoin-backed bond known as the "Volcano Bond."
The Bond Will Be Used to Pay Off Debts
The digital securities law, which was first proposed in November 2022, was approved by a vote of 62 to 16 and will be signed into law by President Nayib Bukele.
'Volcano Bond' is named after the country's Bitcoin City, which will be powered as a renewable crypto-mining center by hydrothermal energy from the nearby Conchagua volcano. According to Bitfinex, the bonds' technology provider, El Salvador intends to use the Volcano Bond to pay down its sovereign debt, fund the construction of Bitcoin City, and create Bitcoin mining infrastructure.
The bonds, according to the government's proposal, would be denominated in US dollars and pay 6.5% annually for ten years with a five-year lock-up period, as well as fast-track access to citizenship in the country. The announcement also stated that the bonds would be issued soon.
President Bukele Increases His Belief in Bitcoin
El Salvador's President Nayib Bukele announced in September 2021 that Bitcoin would become legal tender in the country of 6.3 million people. Despite the opposition of many of his own citizens, he has since doubled down on Bitcoin.
Even during the 2022 crypto winter, Bukele has committed to purchasing one Bitcoin per day, which will be added to the country's stash of approximately 2,300 BTC. Following the rejection of an IMF loan, the country is now likely to proceed quickly with bond issuance to fund $667 million in maturing bonds.
In conclusion
The latest move comes as El Salvador faces financial difficulties and debt default. Its credit rating was downgraded to "most distressed sovereign debt in the world" in 2022. The Central American country has taken a risk at a time when the entire cryptocurrency industry is in disarray.
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January 18, 2023
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