If this fails, many doors close: El Salvador prepares the introduction of a Bitcoin bond

Josué País, owner of a taxi company in El Salvador, which accepts payments in Bitcoin by the tourists who use the service, supports the country's latest plan to capitalize on the country's recent plan.

"The curiosity drives me," said País, 36, the plan to buy about $ 200 of the "Bitcoin bond" of the Central American country, which is to be launched this week. "Firstly, I will do it to support the country. Number two because it is a big, attractive bet."

The country's president of the country, Nayib Bukele, rely on the interest in the Bitcoin-supported bond of País and small investors worldwide. According to analysts, this was one of the few remaining options to save the nation from its financial hole, but since institutional investors are reluctant to take part and the price of Bitcoin is falling, the introduction could not be successful.

six months after El Salvador was the first country of Bitcoin to make a legal means of payment, the government is fighting for the repayment and refinancing of expiring debts. His government bonds fell on Ramschstatus last year, as the investors fear that the budget deficit that IMF says is not wearable this year. The fund has asked El Salvador to lift Bitcoin's status.

The 10-year bond is a key element from Bukeles courageous economic experiment. He hopes to raise at least $ 1 billion to increase the country's Bitcoin supplies and to finance a new “Bitcoin city” near the border with Honduras, which is operated with geothermal energy from a nearby volcano. According to experts, additional funds could be applied to avoid a strict IMF program or a restructuring of the government debt.

"If this is a failure, many doors close," said Carlos Acevedo, a former President of the Central Bank of El Salvador. "This edition will define a lot."

Several institutional investors said that they were watching the bond with interest, but would not participate, and found that buyers were rather crypto-small. Some analysts believe that the start will be delayed, but bukele's strict control of the congress means that the relevant laws can be approved quickly - the draft law of making Bitcoin a legal means of payment was passed within a few hours.

For Bukele, the hug of crypto has only brought limited results. The government had argued that El Salvador's major work migrants Bitcoin would find a cheaper and better way to send money home. But central bank data showed that only 2 percent of the transfers were sent with digital wallets in January.

Seventy percent of Salvadorians have little or no trust in Bitcoin and believe that it mainly benefits foreigners, such as the crypto enthusiasts who visit the country, business leaders and rich, as a survey by Central American University showed.

"I am not sure how to use it, it was afraid that it was going up and down, it is very volatile," said Alejandro Jiménez, 23, who works in a call center in the capital San Salvador. "This is a rather risky bet of our government."

A manager of a bank said that less than 0.01 percent of the debt payments in Bitcoin would be made, while another of a competitor said that he had seen an “irrelevant” number of transactions.

Tourism stays depressed, with visitor numbers in 2021, which are well below the years before pandemic, as official data show. But the government said that tourism increased in November and December and estimated that 20 percent of the transactions were made in Bitcoin in this sector.

The costs of the crypto experiment, including contracts in relation to Chivo-the official Bitcoin app, which according to government has 2 million active users-or how Bukele buys the country's Bitcoin were not published. Investors who try to understand economic policy are looking for the meeting with Bukele's brothers who are key figures in a small group of decision -makers.

"The clearest government policy is the opaque in dealing with public funds," said Ruth López, anti -corruption director of the non -profit organization Cristosal. "Especially in public purchases and the development of the ecosystem to support Bitcoin and the government app."

The government did not respond to inquiries about comments on the Bitcoin bond. Finance Minister Alejandro Zelaya said last month in an online interview that the probability of a failure of his government bonds exists at "zero percent" and that the emission of crypto bonds would correspond to the "Know Your Customer" rules to prevent money laundering.

Several factors could restrict interest in the bond. With a Bitcoin trade of around $ 40,000, cryptocurrency is about 20 percent below its level a day before it became legal means of payment in El Salvador.

The sale of bonds is also done because cryptocurrency exchanges try to resist the pressure, to block transactions from Russia, because there are concerns that crypto investments make it easier to avoid sanctions. El Salvador recently abstained in a UN vote to convict the Russian invasion of the voice in Ukraine, and Bukele plans a trip to Moscow in July.

The crypto bond is issued by the state thermal energy company LA Geo, according to investors and bankers. Americans will not be able to buy the bonds because it is prohibited to use Bitfinex, the trading platform that you will sell. In the original presentation of El Salvador it was said that investments in dollars, Bitcoin and Tether were allowed.

The financial stimuli of the bond are limited, analysts said. The bond offers an annual cupon of 6.5 percent - much less than the return currently available for government bonds of El Salvador - plus 50 percent of Bitcoin price gains after five years. This made it more suitable for investors who wanted to support the wider crypto experiment by El Salvador instead of making the best profit, analysts said.

"If El Salvador had solid public finances.. It [The Bitcoin Bond] could be another story," said Acevedo. "If you carry out a cold analysis, simply buy Bitcoin directly."

Additional reporting by Jonathan Wheatley