Summary:
The government of El Salvador plans to issue its first Bitcoin-backed bonds in 2024. The program aims to provide funds for building Bitcoin City and investing in Bitcoin. However, the plan has also been criticized by many for its risks.
This article will analyze the pros and cons of issuing Bitcoin-backed bonds in El Salvador, as well as its future prospects, based on the background of El Salvador’s adoption of Bitcoin as legal tender.
The background to El Salvador’s adoption of Bitcoin as currency
El Salvador is a small country in Central America with a population of approximately 6.5 million people. The country's economic development level is low and the poverty rate is extremely high. In recent years, El Salvador has faced a serious economic crisis, with high and abnormally high inflation rates.
In response to ongoing economic problems, local governments have introduced bills dedicated to Bitcoin compliance. Committed to allowing Bitcoin to help El Salvador solve economic problems, including reducing remittance costs, promoting financial disincentives, and attracting foreign investment.
In June 2021, the El Salvador Legislative Assembly passed the Bitcoin Law, listing Bitcoin as the country’s legal tender alongside the US dollar.
In September of the same year, El Salvador became the first country in the world to designate Bitcoin as legal tender. The government of El Salvador will purchase Bitcoin as a reserve and encourage businesses and individuals to use Bitcoin for transactions.
This move quickly attracted widespread attention from the international community and also brought new challenges to the future development of Bitcoin.
But the good times did not last long, and the price of Bitcoin fell from US$69,000 from the end of 2021 to early 2023 to below US$18,000. Despite the astonishing price of Bitcoin at the time and the country’s policies that had been questioned and ridiculed during this period, the El Salvadoran government still insisted on adopting Bitcoin as the country’s legal tender.
After a sudden turn of events, finally in December 2023, the price of Bitcoin returned to the US$44,000 mark.
Promoter of nationalization of Bitcoin legal currency
However, one person must be mentioned for this contribution to pushing Bitcoin into a legal currency, and that is El Salvador President Nayib Bukele.
Bukele is a young politician and the current president of El Salvador. He has been actively promoting the legalization of Bitcoin and has focused on the Salvadoran government to purchase Bitcoin as a reserve and encourage businesses and individuals to use Bitcoin for transactions.
Bukele believes that Bitcoin can help El Salvador reduce remittance costs, promote economic growth and attract foreign investment. He also said that Bitcoin could help El Salvador get rid of its dependence on traditional currencies such as the U.S. dollar.
Bukele is the first president of a country to use Bitcoin as legal currency, which has great significance and far-reaching influence on the policy reference and guidance of various countries.
The El Salvadoran government’s next steps
El Salvador’s President Nayib Bukele announced that El Salvador will continue to invest in Bitcoin and plans to issue Bitcoin token-backed bonds (aka “Bitcoin Volcano Bonds”) in 2024
It is reported that the El Salvador Bitcoin Volcano Bond is planned to be issued in the first quarter of 2024. This move is El Salvador’s latest plan to adopt Bitcoin as legal tender. The bond plans to issue US$1 billion in the form of digital tokens with a term of 10 years.
By then, Salvadoran regulators had approved the issuance of the bond, ending the wait for the Bitcoin Volcano Bond.
According to reports, the Commission on Digital Assets (CNAD) has approved the regulation of Volcano Bonds. CNAD is the government agency responsible for regulating the digital asset ecosystem in El Salvador.
El Salvador's President Nayib Bukele announced the news on X (Twitter) and said the bond will be issued in the first quarter of 2024.
The issuance of the El Salvador Bitcoin Bond would be El Salvador’s latest move to adopt Bitcoin as legal tender and could have a significant impact on global financial markets.
About Bitcoin Support Vouchers
A Bitcoin-backed bond is a bond issued by a government or enterprise. It is a bond with Bitcoin as principal or interest payment (it can also be understood as a 'derivative of Bitcoin'). Its price fluctuates with Bitcoin. Coin prices are closely related. Its advantage is that it can provide Bitcoin investors with a new investment method or channel, which can help increase the recognition and acceptance of Bitcoin and spread its influence.
At the same time, there are potential risks associated with Bitcoin-backed bonds. Specifically, the value risk coefficient of Bitcoin is high, and there are still many uncertainties in supervision. For example, a sharp drop in the price of Bitcoin may increase the risks of bond investors and cause investors to suffer greater economic losses. Therefore, investors should fully understand the potential risks before investing in Bitcoin-backed bonds.
The Future of El Salvador’s Bitcoin-Backed Bonds
There is some uncertainty about the future prospects of El Salvador’s Bitcoin-backed bonds. If the price of Bitcoin continues to rise, the bond will have high investment value. But if Bitcoin prices continue to fall, the bond will face greater risks.
In addition, the El Salvadoran government needs to strengthen its supervision of Bitcoin to prevent criminal activities such as money laundering. If the El Salvadoran government can effectively address these risks, Bitcoin-backed bonds may be successful.
in conclusion
El Salvador’s Bitcoin-backed bond is a significant initiative that will inevitably have an impact on the future development of Bitcoin. The bond’s success will depend on the direction of Bitcoin’s price, El Salvador’s government regulatory capabilities, and international acceptance. #萨尔瓦多 #火山债券
