El Salvador addicted to its Bitcoin - Volcano Bonds (still) at a standstill

El Salvador addicted to its Bitcoin – Volcano Bonds (still) at a standstill

When Bitcoin rules – On September 7, 2021, El Salvador adopts the Bitcoin Law. First country to accept the king of cryptocurrencies as legal tender, this government decision is historic. 9 months later 25% of the population have adopted BTC. However, this revolution is not without risk. Bitcoin price volatility is playing tricks on the government. Government bonds called Volcano Bonds are the example. The authorities indeed confirmed at the beginning of June their intention to push them back again. Explanations.

El Salvador, a fiery country for Bitcoin

Before digging into the subject, it is necessary to understand what the government bonds. These are transferable securities which represent a fraction of a State’s debt. Investors advance the funds and then benefit from interest.

In El Salvador these bonds are nicknamed Volcano Bonds in honor of the Conchagua Volcano. At the foot of this volcano will be built the Bitcoin City, green BTC miner city. This project announced on November 21, 2021 is very innovative. Indeed, this is the first time that government bonds are backed by Bitcoin.

Bitfinex helped the government of El Salvador build a digital securities exchange platform. Blockstreaman infrastructure provider for the Bitcoin blockchain, is also supporting the project by allowing the issuance of Volcano Bonds on Liquid Networka solution to streamline and increase the speed of the Bitcoin network.

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El Salvador will not light the fuse for the moment

The Volcano Bonds contracted in November by the President of El Salvador Nayib Bukele therefore had to be reimbursed in March 2022. More precisely, the fuse had to be lit between March 15 and March 20.

However, on March 22, Alejandro ZelayaMinister of Finance, announces for the first time that the Volcano Bonds will not be refunded. The two main arguments are regularly repeated by government leaders. The geopolitical context, on the one hand, and the threats of a war in Ukraine weighed on the cryptocurrency market. It was necessary, on the other hand, to complete the legislation on cryptocurrencies and cryptoassets.

A few months later, the May 9 El Salvador had indeed confirmed its strategy of “buy the dip”, to buy in the hollow in French. It is therefore a real digital reserve that the country is building, which has more than 2300 BTC. Preferring therefore to buy rather than sell to repay its obligations.

Alejandro Zelaya therefore tells us during a television news, this beginning of the month, that the country is still not ready to launch its government bond amounting to one billion dollars.

“We are not selling the parts we have purchased at this time”

Alejandro Zelaya

El Salvador chooses Bitcoin as a reserve currency against the dollar.

This dragging situation had already aroused the wrath of the International Monetary Fund (IMF).

A pro-Bitcoin government between two fires

Economic analysts agree that if El Salvador sold its bitcoins for the Volcano Bonds at present, the country would lose more than $35 million on his investment. This reasoning does not take into account the adage ” not sold, not lost “.

the IMF for its part, an international financial policeman, had proposed a loan of $1.3 billion in El Salvador in response to the project of Leaps. The choice of these bonds backed by Bitcoin having been interpreted as a provocation, an affront to the international monetary order.

However, from the point of view of the philosophy of Satoshi Nakamotofounder of Bitcoin, the king of cryptocurrencies precisely allows the South American country to be independent of the United States and institutions like the IMF.

As international regulators and financial institutions continue to stir things up, Bitcoin adoption in El Salvador is on the rise. The Bitcoin Law has even been able to show positive effects despite some stammering. In November 2021 the profits generated by Bitcoin have enabled the creation of 20 schools. Atypical major player in the crypto-sphere, carried by the voice of its president Nayib Bukele, El Salvador remains a central country allowing reflection on the feasibility of adopting Bitcoin.

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