El Salvador first plans ‘Bitcoin City’, supported by bitcoin bonds

MIZATA, El Salvador, November 20 (Reuters) – El Salvador plans to build the world’s first “Bitcoin City”, originally funded by bitcoin-backed bonds, said President Nayib Bukele on Saturday, doubling its efforts to leverage the cryptocurrency for fuel investment in Central America. the country.

Speaking at an event that ended a week-long campaign for bitcoin in El Salvador, Bukele said the city planned in the eastern region of La Union would get geothermal power from a volcano and not impose any taxes other than VAT.

“Invest here and make all the money you want,” Bukele said in English, dressed in white and wearing a reverse baseball cap, at the seaside resort of Mizata. “This is a completely ecological city that works and gets energy from a volcano.”

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Half of the VAT levied will be used to finance the bonds issued to build the city, and the other half will pay for services such as garbage collection, Bukele said, estimating that public infrastructure will cost around 300,000 bitcoins.

In September, El Salvador became the first country in the world to use bitcoin as a legal tender.

Although Bukele is a popular president, opinion polls show Salvadorans are skeptical of his love of bitcoin, and the bumpy introduction has led to protests against the government.

Bukele likens his plan to cities founded by Alexander the Great, saying that Bitcoin City would be circular, with an airport, residential and commercial areas, and have a central space designed to look like a bitcoin symbol from the air.

“If you want bitcoin to spread around the world, we should build some Alexandrias,” said Bukele, a technically savvy 40-year-old who in September proclaimed himself the “dictator” of El Salvador on Twitter in an apparent joke.

El Salvador planned to issue the first bonds in 2022, Bukele said, suggesting it would be within 60 days.

Samson Mow, strategy manager for blockchain technology provider Blockstream, told the gathering that the first 10-year issue, known as the “volcano bond,” would be worth $ 1 billion, backed by bitcoin and have a 6.5% coupon. Half of the sum would go to buy bitcoin on the market, he said. Other bonds would follow.

After a five-year lock-up, El Salvador would begin selling some of the bitcoin used to fund the bond to give investors an “extra coupon,” Mow said, suggesting the value of the cryptocurrency would continue to rise sharply.

“This is going to make El Salvador the world financial center,” he said.

The bond will be issued on the “liquid network”, a bitcoin side chain network. To facilitate the process, El Salvador’s government is working on a securities law, and the first license to operate a stock exchange will go to Bitfinex, Mow said.

Crypto exchange Bitfinex was listed as the book runner for the bond at a presentation behind Mow.

When 10 such bonds were issued, $ 5 billion in bitcoin would be taken off the market for several years, Mow said. “And if you get 10 more countries to make these bonds, half of bitcoin’s market value is right there.”

The “game theory” of the bonds gave the first issuer El Salvador an advantage, Mow claimed, saying: “If bitcoin at the five-year limit reaches $ 1 million, which I think it will do, they will sell bitcoin for two quarters and get it back. 500 million dollars. “

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Reporting by Nelson Renteria; Edited by Christopher Cushing and William Mallard

Our standards: Thomson Reuters Trust Principles.

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