El Salvador Bitcoin bonds clear regulatory hurdle

El Salvador’s ambitious plan to issue $1 billion in sovereign “Volcano Bonds” backed by Bitcoin has cleared a significant obstacle, bringing the pioneering offering closer to fruition, according to a recent Coindesk report. The country’s nascent Digital Assets Commission (CNAD) has granted regulatory approval for the bonds issued in early 2024 through Bitfinex Securities.

The approval represents a watershed moment for the experimental bonds first unveiled by President Nayib Bukele in 2021 following his government’s historic adoption of Bitcoin as legal tender. Enshrined in legislation passed by a vast parliamentary majority, the bonds are intended to allow El Salvador to tap financial markets to build a geothermal-powered Bitcoin mining ecosystem.

Initially slated for issuance in 2022, complications surrounding El Salvador’s negotiations with the IMF and designing a unique regulatory framework for the asset-backed offering delayed the bonds. Receiving the green light from CNAD, established in 2021 to govern El Salvador’s crypto industry, is seen as an affirmation that the country has managed to construct a robust architecture for crypto financial innovation.

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El Salvador is positioning itself at the bleeding edge of digital asset adoption.

Positioning itself at the bleeding edge of digital asset adoption, El Salvador is moving forward with the bonds despite Bitcoin’s price volatility and the collapse of FTX demonstrating crypto’s risks. The Bukele administration views pioneering government adoption as a differentiator that enhances El Salvador’s investment attractiveness.

If successfully executed, the value of the bonds will be hedged to price stability while offering an attractive 6.5% coupon paid out in US dollars. The underlying bitcoin will be held in a transparent public wallet open to scrutiny, with El Salvador legally bound to redeem the bonds in traditional currency.

The issuance still faces challenges, like drumming up $1 billion in investment for an unproven crypto instrument issued by a developing economy. However, by clearing regulatory barriers, the Volcano Bonds have taken a major leap toward introducing the globe’s inaugural Bitcoin-backed sovereign debt.

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