President Nayib Bukele of El Salvador took to the stage the weekend before the end of “Bitcoin Week” to cheers from fans, his Central American country became the first to accept cryptocurrency do legal tender, along with US dollars.
Bukele, 40 years old, wears his signature upside down cap, considers himself a “savior” like him announced the plan to build “Bitcoin The city” at the foot of the Conchagua volcano overlooking the Pacific Ocean. Bitcoin price in India stand at Rs. 45.11 lakh as of 5pm IST on 25 Nov.
Funded by Bitcoin-backed bonds and powered by geothermal energy, the city will provide a tax-free haven. “Invest here and make all the money you want,” he told the excited crowd.
Supporters have hailed Bukele’s plans – including bringing Bitcoin to legal tender in September – saying they will bring jobs, financial inclusion and foreign investment to one of the countries. poorest in the Western Hemisphere.
“Feel the Bit” reads on a giant screen in front of Bukele, who calls himself the “CEO of El Salvador” on Twitter – on stage.
But some in El Salvador and beyond have expressed outrage at the tangled events in a country marked by inequality, violence and poor public service.
Marce, Twitter user @_lamismadeayer said: “This video makes me sick, angry and sad.
The government says the issuance of $1 billion (about Rs 7,450) in “Volcano Bonds” in partnership with Blockstream – a digital asset infrastructure company – will provide development funds. El Salvador is currently facing a budget shortfall of $500 million (about 3,725 crore) for next year according to credit rating agency Fitch.
But Bitcoin bonds are not designed to fill that void.
Half of the bond proceeds will go to the infrastructure, including the construction of Bitcoin City, the rest is used to buy Bitcoin and locked for 5 years. Once locked, Bitcoins can be sold, generating a capital gain that will be split 50-50 between the government and investors, only after the initial $500 million (about 3,725 crore) is recovered. , according to the plan.
The 10-year Bitcoin bond offers a 6.5% coupon, paying annually, but another Salvadoran bond maturing in 2032 is currently yielding nearly 13.9%.
Financial markets reacted cautiously. The spread of Salvadoran yields to safe-haven US Treasuries has increased sharply since late April. This week, it added 79 basis points and hit above 1,200 bps, its widest ever.
Investors sold off El Salvador’s bonds in May after the Bukele-controlled Congress fired the attorney general and five Supreme Court justices, who were replaced by loyalists, politicians critic said.
According to Refinitiv data, 2025 bonds hit more than 18 percent. With such high costs, the country cannot effectively borrow funds in the market.
Graham Stock, senior sovereignty analyst at Blue Bat Asset Management, said government funding through Bitcoin may discourage El Salvador from adopting sustainable spending policies, adding that the nation This will likely continue to need the support of the International Monetary Fund.
“Building the Economy Around electronic money Mining and attracting crypto businesses is an untested strategy, he said.
Negotiations with the IMF over a $1 billion loan (approximately Rs 7,450) have stalled amid concerns about the lack of transparency and price volatility of cryptocurrencies, as well as concerns about population retreat master as Bukele consolidated power. But many in the crypto community are optimistic, saying the bond will tap into strong retail demand.
“Bitcoin bonds are a game changer in the fixed income markets,” said Moritz Wietersheim, founder of Specter Solutions, a Bitcoin security and products company.
Although Bitcoin is down about 16% from its record high of $68,990.90 (about Rs 51 lakh) this month, it is still up more than 90% this year.
“Bitcoin Week” marks the first time the digital currency experiment has been stress-tested by international crypto evangelists.
As vendors sold “Jesus Loves Bitcoin” shirts, panel discussions grouped crypto leaders and Salvadoran ministers. Excitement spreads at having a ‘petri dish’, as many attendees called the El Salvador experiment.
Some attendees expressed concern about the government’s Chivo wallet, where Salvadorans can send and receive Bitcoin – highlighting the tensions over a state instrument over a created currency. as an alternative to government financial systems.
Preloaded $30 (approximately Rs 2,230) for users and backed by a $150 million fund (approx Rs 1,120), Chivo allows users to make transactions with other Chivo users for free, but registration requires Salvador to enter their ID number and other personal information while the transaction is saved on the ledger.
Some attendees described Chivo as a gateway to independent Bitcoin wallets, such as Muun or BlueWallet, that provide privacy.
“When I pay, in the notes I write ‘use Muun, don’t use Chivo’,” said Wietersheim, using the hashtag #FixChivo on Twitter.
Since its launch, Chivo has been criticized for thousands of cases of fraud and money disappearing from wallets.
Some programmers say that for the speed of implementation – less than four months after Bukele announced it at a June conference – these technical issues are normal.
Bukele has blamed high demand on these problems. Spokespersons for the presidential office and Chivo could not be reached for comment.
© Thomson Reuters 2021
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