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el salvador establishing world’s first bitcoin city, launching $1 bitcoin bond with multiple incentives for investors

According to Bukele, the idea is to create a city that would serve as a shining example of what is possible in the 21st century, having specifically referenced the need for nations and leaders to build modern-day versions of Alexandria.

President of El Salvador, a central American country, Bukele plans to establish the world’s first ‘Bitcoin City’ using bitcoin-backed bonds, which will rely on betting big on the cryptocurrency’s future.

El Salvador’s President Nayib Bukele unveiled his government’s latest plan: to build the world’s first “Bitcoin City”. The circular city – laid out like a coin – will be built at the base of the Conchagua volcano in the eastern region of La Union, where geothermal energy from the volcano is expected to power bitcoin mining.

The El Salvador government will be issuing a $1 billion tokenised bond that will carry a 6.5 percent yield for investors. Approximately $500 million of it will go towards building the city’s infrastructure and bitcoin mining, and the other $500 million from the bond offering will be put towards purchasing more bitcoin.

The multiple incentives attached with the city’s plans include everything from an airport to housing to commercial real estate, and apart from a 10 percent sales tax, there will be no income, capital gains, property, payroll, or municipal taxes.

According to Bukele, the idea is to create a city that would serve as a shining example of what is possible in the 21st century, having specifically referenced the need for nations and leaders to build modern-day versions of Alexandria.

El Salvador's President Nayib Bukele participates in the closing ceremony of a congress for cryptocurrency investors in Santa Maria Mizata, El Salvador, on Nov 20. Bukele announced that his government will build an oceanside
El Salvador’s President Nayib Bukele participates in the closing ceremony of a congress for cryptocurrency investors in Santa Maria Mizata, El Salvador, on Nov 20. Bukele announced that his government will build an oceanside “Bitcoin City” at the base of a volcano.. (Salvador Melendez / AP)

But why is it being called Bitcoin City? It isn’t because bitcoin will be legal tender – it already is in every city in El Salvador – but because it’s being partially funded by a novel financial instrument: “Bitcoin Bonds”.

Developed by Blockstream on the Liquid Network, the bonds will be US dollar-denominated over 10 years. 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.

The annualised yield back to investors is estimated to be a staggering 146 percent by the 10th year, according to Blockstream’s optimistic projection of bitcoin’s price hitting one million dollars. This, in comparison, with the benchmark 10-year yield on El Salvador’s outstanding government bonds that currently stands at 13 percent.

Blockstream’s chief strategy officer Samson Mow said he expected other countries to follow suit, and speculated the move will absorb enough bitcoin to push up its value. That would allow El Salvador to pay off the bond with profits made from selling the bitcoin again.

Crypto exchange Bitfinex has been tabbed as the book runner for the bond, and Mow said it will be sold in $100 tranches to “democratize access to the bond”.

Bukele said the government plans to issue the bitcoin-backed bond sometime in 2022.

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I am an experienced writer, analyst, and author. My exposure in English journalism spans more than 28 years. In the past, I have been working with daily The Muslim (Lahore Bureau), daily Business Recorder (Lahore/Islamabad Bureaus), Daily Times, Islamabad, daily The Nation (Lahore and Karachi). With daily The Nation, I have served as Resident Editor, Karachi. Since 2009, I have been working as a Freelance Writer/Editor for American organizations.

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