El Salvador Announces Plan to Buy Half a Billion Worth of BTC to Fund the “Bitcoin City”

After adopting Bitcoin as legal tender alongside the US dollar, El Salvador is now planning to build the world’s first “Bitcoin City,” which will be free of income, property, and capital gains taxes and will be funded by Bitcoin-backed bonds.

President Nayib Bukele doubled down on using the cryptocurrency to fuel investment in the Central American country. Over the weekend, he shared the intention to issue the sovereign Bitcoin bonds.

The city planned in the eastern region of La Union will get geothermal power from volcanoes. Only value added tax (VAT) would be levied, and half of that would be used to fund the bonds issued to build the city while the other half would pay for services.

“Invest here and make all the money you want,” Bukele said at “Bitcoin Week,” a series of events in EL Salvador. “This is a fully ecological city that works and is energized by a volcano.”

Bitcoin City would be circular, with an airport, residential and commercial areas, and will also feature a central plaza designed to look like a bitcoin symbol. The public infrastructure would cost around 300,000 BTC, Bukele estimated.

“If you want bitcoin to spread over the world, we should build some Alexandrias,” said Bukele.

The initial Bitcoin bonds to fund the city would be issued next year, with Bukele suggesting it would be in 60 days.

The first 10-year issue, known as the “volcano bond,” would be worth $1 billion and issued on Bitcoin sidechain Liquid Network, said Samson Mow, chief strategy officer of blockchain technology provider Blockstream. The bond will be backed by Bitcoin and carry a coupon of 6.5%.

Half a billion dollars of that would be used to buy Bitcoin on the market, he said.

El Salvador has already bought 700 BTC through Mexico-based crypto exchange Bitso whose co-founder Pablo Gonzalez said,

“Money is changing in the world. El Salvador took a courageous step towards accelerating that change in money. They are leading the Bitcoin revolution.”

Some of the to-be-purchased Bitcoin will be sold by El Salvador after a five-year lock-up to fund the bond to give investors an “additional coupon.” Once ten such bonds were issued,$5 billion in Bitcoin would be taken off the market for several years, he added. Mow said,

“If bitcoin at the five-year mark reaches $1 million, which I think it will, they will sell bitcoin in two quarters and recoup that $500 million.”

El Salvador’s government is working on a securities law to facilitate this process, and crypto trading platform Bitfinex will get the first license to operate an exchange, which was also listed as the book runner for the bond.

“This is going to make El Salvador the financial center of the world,” Mow said.

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