Bitcoin

El Salvador’s earlier announced bitcoin bonds seem to be a failure and here’s how.

The point of view that bitcoin is an investment rather than a currency or transactional tool might be an unpopular one in some circles, but is virtually undeniable. As new applications and iterations of crypto assets have emerged in the marketplace, the dominance and leadership of Bitcoin continue to be challenged via the numerous crypto applications running on the Ethereum blockchain. 

El Salvador plans to build the world's first "Bitcoin City" with money from a US$1 billion bitcoin-backed bond, the country's President Nayib Bukele said. 

The Bitcoin bond was set to be issued the last month but El Salvador’s government postponed the sale set for last week citing market conditions related to Ukraine and the price of bitcoin. But the country’s finance minister explained that the issuance is ready and President Nayib Bukele tweeted on March 23 that the sale will happen once a local pension reform is approved.

Some Serious Concerns for the Postpone 

El Salvador’s government has not circulated a prospectus for the bitcoin bond. Those are usually 100-plus page legal documents that disclose financial information, warn of risk factors, and indicate terms and conditions. Authorities have not even published a whitepaper or website with the formula for the bitcoin dividend, plans to safeguard the US$500 million bitcoin purchase, or for that matter, any other basic facts. At this point, potential buyers are running on information from photographs of an outdated PowerPoint slide describing the bond from last November.

The Unknown Facts 

It is not known when exactly next year the bond would be launched or when El Salvador would buy the US$500 million worth of bitcoin it sees as crucial to the plan. The legal rights of would-be buyers have also not yet been detailed. Most government bonds are strict legal contracts which means the government is accountable if the debt is not repaid in full and on time. Those that are sold on international bond markets in dollars are often issued under widely-trusted U.S. or British laws.

The Bottom Line 

The global debt market is much larger and more interconnected than the equity market, although equities typically receive more headlines and discussion. Even with the approval of the first-ever bitcoin exchange-traded fund (ETF), the potential for bitcoin and crypto bonds is a significant story for both nations and corporations. The fact that the proceeds from this bond are going to assist with the construction of the world’s first crypto city is icing on this proverbial cake.