El Salvador Prepares 20 Bills to Provide Legal Framework for Bitcoin Bonds

The government of El Salvador, under the leadership of President Nayib Bukele, has moved forward with plans to issue bitcoin bonds, preparing 20 bills aimed at providing a legal framework for it.

Finance Ministry chief Alejandra Zelaya told Salvador Multimedia El Mundo on Jan. 4 that the bills would cover regulations on the issuance of securities as cryptocurrencies to ensure the viability of bitcoin bonds proposed in November 2021. He said:

"[It's] providing a legal structure and legal certainty for everyone who buys bitcoin bonds."

He did not, however, offer a time frame for introducing legislation to lawmakers.

The $1 billion sought by the bond issue will be used to fund the Bitcoin City initiative, which President Bukele has promised will provide “digital and technology education, geothermal energy for the entire city, and efficient and sustainable public transportation.”

One of the specialties of Bitcoin City is Bitcoin (BTC) mining operations, which use geothermal heat from volcanoes to power mining machines, hence the bond’s so-called “volcanic bonds.” The company mined its first 0.00599179 bitcoins on October 1, 2021.

Funds from the bond sale could also be used to repay an $800 million eurobond due in January 2023. Zelaya told El Mundo that the country will need to find financiers to help them meet their obligations to repay eurobonds, which could be from bitcoin bonds or from “bonds offered by institutions of various investment banks,” rather than another euro bonds.

“We can simply make the payment, and instead of creating another eurobond in the traditional market, we can find a dollar-denominated bond and receive the payment in bitcoin.”

Eurobonds are debt instruments in which countries raise funds in denominations other than their own currency.

Zelaya also said that investors have seen a lot of interest in the bitcoin bond because it offers exposure to bitcoin and a 10-year 6.5% interest term.

However, the issuance of Bitcoin bonds will not prevent the Central American country from participating in traditional finance. "We're not going to give up on traditional markets," Zelaya said.

Notable partners with El Salvador in creating Volcanic Bonds include blockchain developer Blockstream and iFinex, which is closely associated with stablecoin Tether (USDT). The bonds are expected to be issued on Blockstream’s Liquid network and processed by iFinex.

President Bukele tweeted his 2022 predictions on Jan. 2, saying “Bitcoin City will start building” and “Volcano Bonds will be oversubscribed.”