El Salvador plans tokenised Bitcoin bonds, ‘Bitcoin City’

The only tax collected in the city would be a 10% value-added tax that will be used to fund the construction of the city with bonds and to maintain the public infrastructure and services

El Salvador intends to issue the world’s first sovereign Bitcoin bonds and build Bitcoin City, which will be free of income, property and capital gains taxes, President Nayib Bukele announced in Mizata.

The only tax collected in the city would be a 10% value-added tax that will be used to fund the construction of the city with bonds and to maintain the public infrastructure and services.

Bukele offered a glimpse into the design of the Bitcoin City, showing a circular model that will feature a central plaza with the Bitcoin symbol.

El Salvador plans to issue $1 billion in tokenised U.S.-dollar denominated 10-year bonds to pay 6.5% via the Liquid Network, according to Samson Mow, chief strategy officer of Blockstream. Half of the funds of the so-called “volcano bond” will be converted to Bitcoin and the other half will be used for infrastructure and Bitcoin mining powered by geothermal energy, Mow said, while sharing the stage with Bukele.

Blockstream models show at the end of the 10th year of the bond, the annual percentage yield will be 146% due to Bitcoin’s projected appreciation, Mow said, forecasting Bitcoin will hit the $1 million mark within five years.

Mow said the lockup period on the bonds is designed to take $500 million in Bitcoin out of the market for five years, adding to the tokens’ scarcity and value.

Bitcoin reached an all-time high above $68,000 earlier in November, and has declined nearly 20% in the weeks since. Bukele has more than once responded to declines in the price of Bitcoin by buying the dip. As of the end of October, the country owned at least 1,100 of the tokens.

The plans will make El Salvador the financial centre of the world and the Singapore of Latin America, Mow said, adding he expects other countries to follow suit. The first countries that do this will have a massive advantage. This is the beginning of nation state Bitcoin FOMO, Mow said, referring to the term “fear of missing out”.

Investors will also be awarded permanent residence and be fast-tracked to citizenship, Mow said while standing next to Bukele.

This city would be located at the east of the country, with its infrastructure being powered by geothermal energy.

Bitcoin City will be built near the Conchagua volcano which will provide energy for mining, Bukele said, adding that Bitcoin bond issuance will begin in 2022.