El Salvador Bitcoin Bonds to be Launched Soon: Market Sentiment ‘Mixed’

In El Salvador, an upcoming bitcoin bond offering relies heavily on retail investors, but institutional skepticism threatens the project’s success.

Entrepreneur Jose Pais is planning to buy some Bitcoin bonds to support the country, believing that "it is an attractive big bet."

According to Reuters, El Salvador’s Finance Minister Alejandro Zelaya said last Friday that the country is looking for the right time to issue Bitcoin bonds, possibly between March 15 and 20, but it depends on the war situation in Ukraine. Zelaya said: “We are still completing some details, almost everything is ready, the rest is just a matter of time.”

Indeed, President Nayib Bukele does rely on individuals like Pais and retail investors around the world for the success of this initiative.

He hopes to raise $1 billion for El Salvador to buy more Bitcoin and finance a "Bitcoin City" powered by geothermal energy, with any excess funds to be used to pay down debt.

The Central American country’s sovereign bonds have been in junk territory since last year, and the government is struggling to repay existing debt. The International Monetary Fund (IMF) urged Bukele’s government to remove Bitcoin’s legal tender status for six months, fearing that the country’s budget deficit could reach 5% this year.

“If this fails, a lot of doors will close,” said Carlos Acevedo, a former executive at the country’s central bank, even as institutional investors are watching the bond from a distance.

El Salvador’s bet on Bitcoin has “mixed results”

Bukele’s bet on Bitcoin has largely not paid off, as only 2% of remittances in January came from digital wallets, even though the government had earlier cited the high cost of sending overseas remittances in fiat currency as a reason for seeking to make Bitcoin a legal tender.

It seems that many citizens do not trust Bitcoin or are unfamiliar with it. Alejandro Jimenez, an employee at the call center, said: "I really don't know how to use it (Bitcoin). Its price goes up and down, which scares me. It is very unstable."

One bank executive said 0.01% of debts, excluding remittances, were paid in Bitcoin, while a rival said it processed an “unrelated” number of transactions. However, the government insists that 20% of transactions in the tourism industry involved Bitcoin in November and December 2021.

Skeptics say opacity is a problem

Bukele’s secrecy about buying bitcoin for El Salvador has irked some people. “The clearest government policy in El Salvador right now is to use public funds in an opaque manner,” said Ruth Lopez, a senior official at anti-corruption nonprofit Cristosal.

The bonds will be issued by thermal energy company La Geo, and Americans will not be allowed to buy them through Bitfinex because they are banned from using the company’s services, bankers and investors said. Salvadorans will be allowed to buy the bonds through Bitfinex.

Analysts believe the bond’s gains are limited because sovereign bond yields are higher than the Bitcoin bond’s 6.5% coupon.

“If El Salvador had stable public finances ... Bitcoin bonds might be a different story,” Acevedo said. “Anyone who did a sober analysis would just buy Bitcoin.”

This article is from BeInCrypto, original author: David Thomas