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El Salvador Advances its Bitcoin Dreams, Passes Law to Enact Bitcoin Bonds

El Salvador's lawmakers have given the green light to a bill that might make the country's decades-old plan to issue Bitcoin bonds easier to implement.

Photo by Esaú González / Unsplash

El Salvador has made a historical advance toward embracing Bitcoin (BTC) and issuing the world's first-ever sovereign Bitcoin bond by issuing Bitcoin bond. According to a report (1), the legislative body of the Central American nation finally enacted a digital securities law, which might support the selling of bitcoin bonds.

Because of this law, El Salvador can now issue the world's first sovereign Bitcoin bond, which may be used to generate funds. The bill, which received an overwhelming majority of 62 votes in favor from members of Congress, will now be sent to President Nayib Bukele to be signed into law.

Sixteen members of Congress cast their ballots in opposition to the proposed Bitcoin bond law in El Salvador.

Details of the Bong Law

The bill, also known as the Volcano bond, constitutes a legislative framework highlighting Bukele's plans to offer blockchain bonds. Moreover, it is also known as the Volcano bond. In addition, the securities have the potential to bring in an additional $500 million, which would go toward developing a settlement on the coast named Bitcoin City that is exempt from paying taxes.

The government of El Salvador has the ambitious goal of establishing Bitcoin City at the base of a volcano, from which it will derive its supply of geothermal energy. The mining of digital currency at the location would require a certain amount of energy, which this natural resource may provide.

Meanwhile, the government's proposal includes an additional $500 million to purchase bitcoin. Bondholders would also be entitled to any gain in the dominant digital money that occurred during the bond term.

The International Monetary Fund and credit rating agencies have disagreed with a draft law regarding bonds backed by bitcoin (IMF). As investors consider the possibility of El Salvador defaulting on its debt, the country's sovereign bonds are trading at a loss to their peers.

El Salvador's History With Bitcoin

El Salvador became the world first to acknowledge bitcoin as a legitimate currency when it did so in 2021. In the not-too-distant future, in November 2021, Bukele gave a presentation to BTC fans in which he hinted at his plans for the volcano bond. The initial proposal by the government indicated that the tokenized bonds would be denominated in US dollars and would pay a coupon rate of 6.5% per year for ten years.

In the first quarter of 2022, El Salvador intended to sell bonds secured by bitcoin for one billion dollars. Paolo Ardoino, the chief technological officer of Bitfinex, stated at the time of the release that the platform would play an important supporting role.

As part of your function, you would be responsible for establishing a securities exchange that would store El Salvador's Bitcoin bonds. In addition, Ardoino stated the following at the time:

"[The platform] will soon become home to a wide variety of domestic and international digital asset offerings, which will contribute to developing new digital asset laws for the country! Bitfinex, El Salvador, and Blockstream all contribute to shaping history together.

Despite this, the bond issuance was delayed multiple times due to the severe bear market that occurred in the crypto currency market for most of 2022. Alejandro Zelaya, El Salvador's Minister of Finance, made the announcements on two distinct occasions, one in March and the other in June last year.

At the time, Zelaya stated that the nation in Central America would wait until there was a more favorable atmosphere in the market. In addition, he emphasized that the recent decrease in the price of Bitcoin harmed investor sentiment.

In November of last year, El Salvador officially cleared the path for issuing its Bitcoin bonds by passing a bill on digital assets. Since it embraced the prominent crypto currency in 2021, the nation has strengthened its holdings of BTC.