El Salvador is planning the world’s firs tax-free ‘Bitcoin City,’ backed by Bitcoin bonds.
El Salvador plans to build the world’s first “Bitcoin City,” initially funded by Bitcoin-backed bonds, President Nayib Bukele announced on Saturday, doubling down on his bet that the cryptocurrency will fuel investment in the Central American country.
Speaking at the end of a week-long Bitcoin promotion in El Salvador, Bukele stated that the city planned in the eastern region of La Union would use geothermal energy from a volcano and would not levy any taxes other than the value added tax (VAT). As of 10:30 a.m. IST on November 22, the price of bitcoin in India was about $62,948
“Invest here and make all the money you want,” Bukele, dressed all in white and wearing a reversed baseball cap, said in English in the beach resort of Mizata. “This is a completely ecological city that operates and is powered by a volcano.”
Bukele estimated that the public infrastructure would cost around 300,000 Bitcoins and that half of the VAT levied would be used to fund the bonds issued to build the city.
El Salvador became the world’s first country to accept Bitcoin as legal tender in September.
Although Bukele is a popular president, opinion polls show that Salvadorans are skeptical of his love of Bitcoin, and its rocky introduction has fueled anti-government protests.
Bukele compared his plan to Alexander the Great’s cities, saying Bitcoin City would be circular, have an airport, residential and commercial areas, and a central plaza designed to look like a bitcoin symbol from the air.
“If you want Bitcoin to spread around the world, we should build some Alexandrias,” said Bukele, a 40-year-old tech savvy who, in an apparent joke, declared himself “dictator” of El Salvador on Twitter in September.
El Salvador planned to issue the first bonds in 2022, according to Bukele, implying that it would be within the next 60 days.
The first 10-year issue, known as the “volcano bond,” would be worth $1 billion, backed by Bitcoin, and carry a 6.5 percent coupon, according to Samson Mow, chief strategy officer of blockchain technology provider Blockstream. He stated that half of the funds would be used to purchase Bitcoin on the open market. Other bonds would emerge.
El Salvador would begin selling some of the Bitcoin used to fund the bond after a five-year lock-up period to give investors a “additional coupon,” Mow said, predicting that the cryptocurrency’s value would continue to rise strongly.
“This will make El Salvador the world’s financial center,” he predicted.
The bond would be issued on the Bitcoin sidechain network known as the “liquid network.” El Salvador’s government is working on a securities law to facilitate the process, and the first license to operate an exchange would go to Bitfinex, according to Mow.
Exchange of cryptocurrencies On a presentation behind Mow, Bitfinex was listed as the bond’s book runner.
Mow stated that if ten such bonds were issued, $5 billion (roughly Rs. 37,175 crore) in Bitcoin would be removed from the market for several years. “And if 100 more countries issue these bonds, that’s half of Bitcoin’s market capitalization right there.”
According to Mow, the “game theory” on the bonds gave first issuer El Salvador an advantage: “If Bitcoin reaches $1 million at the five-year mark, which I believe it will, they will sell Bitcoin in two quarters and recoup that $500 million .”
