Bitcoin sovereign bonds to be issued by El Salvador

Karthik Subramanian

El Salvador, which recently became the first country to make bitcoin legal tender, is planning to issue sovereign bitcoin bonds which will be worth $1 billion and would be 10-year bonds.

The country has been at the forefront of adopting Bitcoin and the issuing of bitcoin bonds is just one more action towards that as it continues to push ahead with it. Half of the funds raised would be converted to bitcoin while the other half would be used for building infrastructure and also help with bitcoin mining. This in turn means that the country would have to buy $500 million worth of bitcoin and this would remove that amount of bitcoin from circulation, which has a finite supply. This is likely to increase the demand and decrease the supply for bitcoin which can push the prices higher even further. It is expected that at the end of the 10 yrs, the bitcoins would be sold back to the market which it hopes would be much higher than the current price, and hence it would be able to pay out dividends over and above the 6.5% that the bond promises.

The lockup period is for 5 years only and it is expected that the bitcoin price would be very high by that time making this investment of El Salvador and the associated bonds to be in high demand in the coming months. It would not be a surprise if the bitcoin bonds are sold out very quickly. Apart from this, the country has also proposed to build a Bitcoin City which would be free of capital gains tax with only a common 10% being charged as value-added tax and this is expected to draw in many investors into the new city, big and small.

Though the bitcoin enthusiasts are very eager and happy to know the current plans of the country, the people and the government there would be well served with a note of caution. Bitcoin is known for its huge volatility and the price could move either way at any point in time. Though the price forecasts are very positive, things could change at any point in time which could place all the huge investments being made, in jeopardy and hence it is important that they need to also do a lot of risk management on their investments to make sure that the price volatility doesn’t affect them too much.

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