Ambitious El Salvador president, Nayib Bukele, is planning to use a $1 billion Bitcoin bond to fund a new municipality called “Bitcoin City.”
Bukele envisions the municipality being circle-shaped, boasting a Bitcoin symbol in the middle that’s visible from aircraft… having various amenities including residential and commercial zones, bars and restaurants, an airport, a port, entertainment… being free of income, property, and capital gains taxes… and mining operations powered by geothermal energy from a… volcano. Got it?
Well, we’re right there with you. The project sounds a bit far-fetched. The idea of this kind of bond, however, is intriguing for many reasons…(more highlighted here).
How It Works:
- The bond will be split into two $500M tranches, one of which will go towards buying Bitcoin with a five-year lockup (Bukele will essentially market-buy $500 million in Bitcoin) and the other will go toward funding energy infrastructure and Bitcoin mining.
- The bond will mature in 2032 and will boast a 6.5% coupon. Additionally, the bond has a dividend designed to give back half of the proceeds to investors after recovering the first $500 million in Bitcoin.
- The Republic of El Salvador is the issuer of the bond, with Bitfinex Securities listed as the bookrunner. It will issue the bond on the Liquid Network, a Bitcoin sidechain. The presentation also lists USD, BTC, and USDT as currencies that can be used to purchase the bond.
Why This Is Actually Pretty Cool:
- If Bitcoin keeps going up, as it has since its existence, bondholders are in for a sweet return, or at least much better than the returns they’d receive from other types of bonds.
- Taking it even further, the bond will be accessible to many more individuals as they will be able to buy partial shares with a minimum purchase of $100.
- If this bond offering succeeds, we should expect to see many more bond offerings that use a proceed of the funds raised to purchase Bitcoin to create added yield for bondholders.