El Salvador Announces Bitcoin City, Funded By $1 Billion Bitcoin Bonds
Nayib Bukele, the President of El Salvador, announced that he would issue a $1 billion “Bitcoin Bond” to build the first Bitcoin City in the world.
The city would no taxes other than VAT. It would also be carbon neutral, with most of the energy powering it coming from geothermal sources such as volcano. The President also said that his country would partner with Blockstream and use its liquid network to issue the bitcoin bond.
Bitcoin City Announced in El Salvador
El Salvador led by President Nayib Bukele, has taken the next step that will integrate bitcoin further into the lives of its citizens. The president announced yesterday at the closing event of Labitconf, a Latin America-based Bitcoin conference, the construction of the first Bitcoin City in the world that would be funded with the issuance of a $1 billion Bitcoin Bond.
This city would be located at the eastern part of the country, with its infrastructure being powered by geothermal energy. The city would also feature zero taxes for its citizens. On this, Bukele said:
“Invest here and make all the money you want. This is a fully ecological city that works and is energized by a volcano.”
According to Bukele, Bitcoin City will be a full-fledged metropolis with residential and commercial areas. It would also have shopping centers, restaurants, a port, an airport, and railway services. There would be no income, property, capital gains, or payroll taxes. Residents would, however, be subject to just value-added tax (VAT). This tax will go towards paying for the municipality’s bonds, public infrastructure, and city maintenance.
Bitcoin Bond Backed by Blockstream and Bitfinex
Bukele also said El Salvador plans on issuing $1 billion US “bitcoin bond,” a tokenized financial instrument developed by Blockstream, on the Liquid Network. Of that amount, $500 million will be used to help construct needed energy and bitcoin mining infrastructure and $500 million to buy even more bitcoin. At the cryptocurrency’s recent trading price of about $59,000, that would bring the country’s treasury stash to just under 2,000 bitcoins.
El Salvador intends to create a securities law and grant a license to Bitfinex Securities to process the issuance, Blockstream said in a release.
Samson Mow, Blockstream’s chief strategy officer, told the audience that the $1 billion in tokenized bonds will be 10-year U.S.-dollar denominated and pay 6.5% initially. Following a lock-up period of five years, El Salvador will start to sell its cryptocurrency holdings and pay an added dividend to bond holders, Mow said.
By the time 10 years have elapsed the annual percentage yield will be 146%, Mow said, based on Blockstream models predicting the price of bitcoin will have hit $1 million within the next five years. Indeed, by using $500 million of the proceeds to buy bitcoin and locking it up for five years, El Salvador is hoping that by taking so much of the cryptocurrency out of circulation for so long it helps contribute to bitcoin’s price appreciation, Mow said.
El Salvador will become “the Singapore of Latin America,” Mow said.
