el salvador’s president nayib bukele announced over the weekend that his country plans to build the first ‘bitcoin city,’ a near-tax-free utopia for bitcoiners financed by a bitcoin-based bond and bitcoin mining with geothermal energy.
The country plans to finance the construction of the city and the infrastructure for bitcoin mining through a $1 billion tokenized bond. the only tax in the city will be a 10% value-added tax to help finance construction and pay for overhead in the future. This bonus is issued by Blockstream’s Liquid Network Sidechain and processed by Ifinex. $500 million of the bond, which has a 6.5% coupon rate, would go toward building the city and necessary mining infrastructure, while the other half of the bond would go toward buying more bitcoin.
After a five-year lock-up period, the salvager can begin selling its holdings of cryptocurrencies purchased through the bond to pay an additional dividend to holders. After a period of 10 years, Blockstream CSO Samson Mow estimates the APY to be 146% based on the assumption that Bitcoin will be worth $1 million by then. for that to happen, the circulating supply of roughly 20.5 million bitcoins over 10 years would be valued in US dollars at more than $20 trillion, or roughly double the current market capitalization of gold.
mow believes that the $500 million bond that is earmarked for buying bitcoin, assuming other nations follow el salvador’s example, will accelerate price appreciation by withdrawing currencies from the market. El Salvador’s announced purchase amounts to around 8,500 bitcoins, less than 0.4% of the 2.3 million bitcoins currently on exchanges, though that figure has been gradually declining over the past four months.
during a presentation with president bukele of el salvador, mow said that el salvador will become “the singapore of latin america” and one of the most important financial centers in the world. el salvador’s gross domestic product per capita for 2020 was $3,799, while singapore’s gdp per capita was $59,798 in 2020.
The nearby Conchagua volcano, which powers the new bitcoin mining operation, connected to blockstream’s orbiting bitcoin node last week.
a regulatory oasis for bitfinex and tether?
el salvador plans to create a new securities law to support the issuance of tokenized bonds. in a statement, ifinex’s role is described as bringing “expertise in advancing and complying with cryptocurrency laws and regulations; work cooperatively and effectively with law enforcement and regulators; and, issue and facilitate the trading of digital assets, including cryptocurrencies.”
According to a statement from blockstream, ifinex’s bitfinex securities will process the bonds, which can be purchased using btc, usd and usdt (tether).
ifinex parent company bitfinex has been fined by the new york attorney general for tether reserve reporting irregularities. tether is currently under investigation by the justice department for allegations of bank fraud, and the investigation is understood to relate to tether’s banking relationships in its early days, when it operated with various institutions in taiwan. tether still provides a taiwan address on its fincen record, despite having no apparent connections to the country.
blockstream did not make mow available for comment, nor was the company able to share the bond prospectus with blockworks.
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