El Salvador, being the only country to officially recognize bitcoin as a legal tender, has taken another significant step to solidify bitcoin's economic importance amid global financial institutions' reservations.
The government has decided to implement a legal and financial framework for a USD1 billion bitcoin bond issue, known as the Volcano Bonds.
A Volcano Bond is a financial instrument in which a certain portion of an investor's money held in Bitcoin is locked up or fixed for a five-year period, and in which gradual liquidation of the asset takes place within another five-year period with half the appreciation value paid to the investor.
According to Brain Newar of Cointelegraph, President Nayib Bukele of El Salvador has moved ahead with plans to issue Bitcoin bonds by preparing 20 bills designed to provide a legal framework for them.
Head of the Treasury Alejandra Zelaya told El Salvadoran media El Mundo on Jan. 4 that the government, after exhaustively examining the nature of the bill, believes that the bill will provide a model platform for regulations about issuing securities as cryptocurrency to provide trust and confidence in Bitcoin bonds.
"[This is] to provide a legal structure and legal certainty to everyone who buys the Bitcoin bond." He said.
Unfortunately, Alejandra did not provide a timeframe for the bill to be submitted to lawmakers for review.
President Bukele plans to use the proceeds from the sale to build a USD1 billion Bitcoin City that will provide "digital and technological education, geothermal energy for the entire city, and efficient and sustainable public transport."
One of the unique features of this Bitcoin City is the ability and technological structure that will enable it to mine bitcoin by using the geothermal power generated by a volcano to power the mining rigs. This made it the first in the world as 0.00599179 BTC was mined on October 1, 2021.
Moreover, the country still owes a part of the USD800 million Eurobond issue, which is to mature in January 2023. It is believed that funds realized from this "volcano bond" will be used to service repayment.
"We can simply make payments without creating another Eurobond in the traditional market, and we can find a bond that is denominated in dollars and receives payment in Bitcoin." Alejandra Zelaya said, reaffirming the government position.
The bonds are expected to be issued on Blockstream’s Liquid Network and processed by iFinex.
President Bukele tweeted his 2022 predictions on Jan. 2 that "Bitcoin City will commence construction," and "Volcano bonds will be oversubscribed."
According to the cryptocurrency analyst at Researchitlive.com, this development will help push Bitcoin's price closer to his USD100,000 target.