El Salvador plans to issue first bitcoin bond next month

El Salvador plans to issue its first “bitcoin bond” next month, finance minister Alejandro Zelaya said on February 8.

Speaking on a local news program, Zelaya said that the government is planning to have the bond “totally ready” for issuance between March 15 and March 20.

“If we really want to build this country, we have to invest in it like this,” Zelaya said.

Zelaya confirmed that the government is still planning to issue $1 billion for the first bond, as previously mentioned during a November 20 event. However, Zelaya said during the show that he now expects the bond to be oversubscribed by about $500 million, at least.

According to Zelaya, more people would have access to this new type of bond than a traditional one, as it will allow a minimum purchase of $100 and does not require going through a stockbroker. The bond will be issued on Blockstream’s Liquid Network sidechain. Zelaya said the bitcoin bonds “will comply with all the regulations of the financial markets,” such as know-your-customer (KYC) and due diligence practices.

The world first learned about the bitcoin bond idea during a flashy event on November, 20, when El Salvador’s president Nayib Bukele shared the stage with Blockstream chief strategy officer Samson Mow. Mow explained the specifics of the bond, and Bukele also unveiled plans to create a new, crypto-friendly municipality called Bitcoin City. 

While crypto enthusiasts are excited about the bonds and presumably will want to buy them to leave their mark on history, other financial experts have raised questions about whether they are a good investment and will attract a sufficient amount of investors.

The International Monetary Fund (IMF), which has reportedly been in talks with El Salvador for a $1.3 billion loan, recently noted that some of its directors “expressed concern over the risks associated with issuing Bitcoin-backed bonds.” Meanwhile, the country has an $800 million bond maturing in January 2023, Reuters reported. 

El Salvador’s first bitcoin bond will have a 6.5% coupon and mature in 2032, according to that November presentation. Zelaya also mentioned that coupon during the interview. The country is planning to use half of the issue for bitcoin purchases, while the rest would be used for other things like energy infrastructure and mining.

Bitfinex Securities was listed as the bookrunner when Bukele and Mow announced the bonds. Its parent company, iFinex Inc., issued a press release stating it had closed a deal with El Salvador’s government on November 19 that “outlines a collaboration on the creation of digital assets and securities regulatory framework to regulate, issue, and operate digitized financial instruments in El Salvador.”

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