The upcoming introduction of bitcoin bonds in El Salvador is mainly reliant on retail investors, but institutional distrust threatens the project’s success.
Another businessman, Jose Pais, intends to purchase around $200 of the bitcoin bond in order to support the country because “it’s a large, attractive bet.” Indeed, it appears that President Nayib Bukele is banking on individuals like Pais, as well as retail investors around the world, to ensure the success of the bitcoin-backed bonds, which are expected to go online this week.
He hopes to raise $1 billion for the country to acquire more bitcoin and establish a “bitcoin metropolis” powered by geothermal energy, with any extra revenues going toward debt repayment.
Since last year, the Central American country’s sovereign bonds have been rated junk, and the government is battling to pay off existing debt. The International Monetary Fund has encouraged Bukele’s administration to revoke Bitcoin’s six-month-old legal tender status, citing concerns that the country’s budget deficit could approach 5% this year.
“If this fails, a lot of doors close,” said Carlos Acevedo, a former officer of the country’s central bank, despite the fact that institutional investors have been watching the bond from afar.
Bukele’s bitcoin bets have largely gone unmet, as only 2% of remittances in January were transferred from digital wallets, despite the government previously citing expensive international remittances in fiat as a reason to adopt bitcoin as legal tender.
Many folks appear to distrust bitcoin or are unfamiliar with it. According to Alejandro Jimenez, a call centre employee,“I’m not really sure of how to use it, it scares me that it goes up and down, it’s very volatile.”
According to a top bank official, 0.01 percent of the debt was paid in bitcoin outside of remittances, while a competitor said it had processed an “irrelevant” number of transactions. However, the government claims that in November and December of 2021, bitcoin accounted for 20% of all transactions in the tourism sector.
Some have been irritated by Bukele’s secrecy around the acquisition of bitcoins for the city. “The clearest government policy is opaqueness with public money,” says Ruth Lopez, a senior official at the anti-corruption non-profit Cristosal.
According to bankers and investors, the bonds will be issued by thermal energy business La Geo, and Americans will not be able to purchase bonds through Bitfinex since they are prohibited from utilizing the company’s services. Salvadorans will be able to purchase the bonds using Bitfinex.
Analysts feel that the bond’s benefits are limited because sovereign bonds offer a better return than the bitcoin bond’s 6.5 percent payment.
“If El Salvador had sound public finances it might be a whole different tale,” Acevedo remarked. “Anyone who conducts a cold analysis will simply purchase bitcoin straight.”