El Salvador puts its proposed March Bitcoin bond launch on hold as global macro winds create unfavourable conditions for a successful launch.
Early this week, El Salvador’s Finance Minister announced the postponement of the eagerly awaited Bitcoin bond launch. The volcano bonds initially scheduled for issue on March 2022 have now been postponed until September.
Doubts had risen early about the suitability of a launch in the face of the ongoing Russia-Ukraine conflict. The crisis had added more intensity to the already volatile crypto market, which had seen prices slump since November. However, the Salvadoran government was adamant that the launch would go on. Unfortunately, it has decided that the timing is unconducive and the launch has now been moved
El Salvador’s Bold Experiment Gets Updated
After becoming the first country to have Bitcoin as legal tender, El Salvador’s president, Nayib Bukele, announced bitcoin-backed bonds in November 2021. According to him, $1 billion would be raised through the bond issuance for the Central American country’s bitcoin city. The proposed town will be situated at the foot of the Conchagua volcano and offer mining operations and cheap taxes.
The proposed issuance has received critical opposition from the International monetary fund (IMF). The international body has warned about El Salvador’s debt levels and asked that it reverses its Bitcoin stance. To further bolster its opposition to Bukeye’s choice, the IMF refused to loan the Central American country $1.3 billion.
Consequently, El Salvador has made several updates to ensure that its plans are successful even without the IMF’s help. Firstly, the country’s administration has drafted about 20 bills that will provide the legal framework for the bonds. According to the Treasury Secretary, the regulation would cover procedures for issuing cryptocurrency securities to ensure the viability of Bitcoin bonds.
Secondly, the government would not handle the issuance of Bitcoin bonds. Zelaya told investors earlier this month that the bitcoin bonds would now be guaranteed by La Geo, a state-owned thermal company.
Also, according to reports, the bonds will be issued on the Liquid Network, a Bitcoin layer-2 established by Blockstream. The president further confirmed that Bitfinex would issue the volcano bonds.
Thirdly, the volcano bonds have been shown to have been oversubscribed by roughly 50%. According to reports citing Zelaya, the total value of the Bitcoin bond bids was approximately $1.5 billion. This has confirmed Bitcoin analyst Antonio Pompliano’s prediction that the bonds would be oversubscribed when Bukeye first introduced them.
Finally, El Salvador will issue bonds with a yearly interest rate of 6.5%. A 50% payment on the amount Bitcoin will appreciate in five years was also promised. This has piqued subscribers’ interest while raising concerns about the feasibility of bitcoin bonds compared to regular bonds. Traditional bonds give even higher returns and are not subject to the level of volatility Bitcoin experiences.
Companies In El Salvador Show Little Interest In Bitcoin
Despite the best efforts of the Salvadoran government to boost crypto adoption, companies have shown little interest. Many local businesses said Bitcoin had had little or no effect on sales.
According to a survey conducted by the Chamber of Commerce of El Salvador, most businesses in the country have not used cryptocurrency for commerce. Since September, when the digital token became a legal tender, only 14% of survey respondents indicated they had transacted in Bitcoin.
Over 90% of the 337 businesses polled claimed Bitcoin adoption in the country had little to no effect on their sales. About 71% of the enterprises studied were classified as small or micro-enterprises, 13% were medium-sized businesses and 16% as large enterprises.
Despite the lukewarm reception to Bitcoin since its launch, El Salvador is moving forward with plans to issue Bitcoin backed bonds. It is still unclear if the local populace would buy in fully into the project, which continues to excite Bitcoin proponents globally.
Do you think that given the prevailing issues, El Salvador’s volcano bonds would be a success? Let us know your thoughts in the comments below.
Chris is a crypto enthusiast and a firm believer in the blockchain’s ability to create a new financial paradigm. Through writing, Chris hopes to expose the intricacies of this disruptive technology and how it is beneficial to Africans and developing countries. He aims to give readers a rational and unbiased outlook of the industry by equipping them with the necessary information to make enlightened investment decisions.
