El Salvador, the first country to recognize bitcoin as a legal tender, passed landmark legislation that establishes a legal framework for a Bitcoin-backed bond dubbed “Volcano Bond.''
Key Takeaways
- The digital asset bill in the Legislative Assembly obtained 62 votes in favor and 16 against.
- Bitcoin-backed bond dubbed 'Volcano Bond' will be used to pay down sovereign debt, fund the construction of the Bitcoin City, and create Bitcoin mining infrastructure.
- President Nayib Bukele continues to double down on Bitcoin despite opposition from his citizens and a debt crisis.
Bond Will Be Used to Pay Debts
Thedigital securitieslaw, first proposed in November 2022, was passed with a majority of 62 votes to 16 against and will be signed into law by president Nayib Bukele.
'Volcano Bond' is named after the country's Bitcoin City, which will be powered by hydrothermal energy from nearby Conchagua volcano as a renewable crypto-mining center. El Salvador plans to use the Volcano Bond to pay down its sovereign debt, fund the construction of the Bitcoin City, and create Bitcoin mining infrastructure, according to Bitfinex, the technology provider for the bonds.
Under the government’s proposal, the bonds would be denominated in U.S. dollars and pay 6.5% annually for ten years with a five-year lock-up period, with fast-track access for citizenship in the country. The announcement added that issuance of the bonds would soon begin.
President Bukele Doubles Down on Bitcoin
El Salvador's President Nayib Bukele announced in September 2021 that he would make Bitcoin legal tender in the country, which has a population of only 6.3 million. Since then, he has doubled down on Bitcoin, despite the opposition of many of his own citizens.
Even during the crypto winter of 2022, Bukele committed to buying one Bitcoin per day, which will be added to the country's stash of around 2,300 BTC. The country is now likely to move forward quickly with its bond issuance to fund $667 million on maturing bonds after an IMF loan was rejected.
The Bottom Line
The latest move comes at a time when El Salvador is facing financial trouble and debt default.In 2022, its credit ratings worsened to the "most distressed sovereign debt in the world."The Central American country has taken a bold step at a time when the whole crypto industry is in turmoil.
