Chris Curl,
Editor
Dec. 1, 2021
Nestled on the Pacific coastline and powered by a volcano, Bitcoin City seeks to become a mecca for the cryptocurrency elite.
It’s happening thanks to the tiny country of El Salvador and its Millennial president, Nayeb Bukele who has long advocated for bitcoin. On June 5th, he declared that bitcoin would become legal tender in El Salvador. The Bitcoin Law was passed that month, requiring all businesses in El Salvador to accept bitcoin for payment starting in September 2021.
Bukele launched the “El Chivo” wallet and deposited $30 worth of bitcoin into every account holder in the country. All of this was done in an attempt to alleviate many serious financial issues facing El Salvadorians.
Firstly, the country has no stable currency of its own and currently relies on the U.S. dollar as a medium of exchange. Up to a quarter of the country’s entire GDP is money sent from abroad (much of it from the U.S.).
Secondly, remittance payments have high transaction costs and many poor El Salvadorians are taken advantage of with sky-high rates. Cryptocurrencies can completely circumvent these fees.
Lastly, 70% of people in El Salvador have no bank account to speak of. Currently, more people there have cryptocurrency wallets than traditional bank accounts.
All of this was met with controversy. Many retailers bristled at the idea of having to accept this seemingly foreign digital currency. Many people were frustrated and unable to adapt to the new technology. Some even took to the streets to protest, calling Bukele a dictator and going so far as to burn up a bitcoin ATM in San Salvador, the nation’s capital city.
Regardless, President Bukele continued to buy bitcoin whenever it dipped, significantly increasing the country’s holdings throughout the Fall. As of October 27th, El Salvador’s treasury held 1,120 bitcoin — worth nearly $66 million.
And he’s not slowing down one bit. He’s planning on issuing a $1 billion bitcoin bond. Half will be used to construct a “Bitcoin City” and the other half will be used to buy another $500 million worth of bitcoin. The coins will be locked up for 5 years and provide the collateral for investors.
Anyone buying these bonds is betting that bitcoin will be worth twice as much as it is today in five years — a safe bet! Many investors would do well to buy these bonds as they yield 6.5% without exposing them to bitcoin’s volatility. And any bitcoin left over after the bondholders are paid goes directly to El Salvador’s treasury.
I think it’s safe to say that the IMF and World Bank are not very charitable when it comes to lending money to small, developing countries. The bitcoin bond creates an opportunity to raise capital while escaping the clutches of international banks. If successful, other countries will likely follow suit.
This newly raised $500 billion will immediately go to building this ambitious “Bitcoin City” in El Salvador’s La Union region. This coastal area is known for its geothermal energy production. President Bukele envisions a city powered 100% by renewable energy. This energy will also be used to power bitcoin mining facilities in the region. And if it’s successful, it could easily create an environment that would attract crypto millionaires and entrepreneurs from around the world.
Time will tell if these ambitious plans succeed or end up in the dustbin of history.
I, for one, am putting my money on bitcoin and President Bukele’s dream to lift his country out of poverty and into the 21st century.
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Keep showing up,
Chris Curl
Editor, Crypto Cycle