El Salvador’s Congress Passes Legislation Allowing Volcano Bond Fundraising

El Salvador, the first nation to recognize Bitcoin as a legal tender (in September 2021), has enacted laws for the issuance of Bitcoin-backed sovereign bonds.

According to a Bloomberg story, El Salvador’s legislature has adopted a new digital securities legislation that would permit the issuance of “the world’s first sovereign blockchain bond” The law, which was adopted by a vote of 62 to 16 and is a component of President Nayib Bukele’s intention to issue Bitcoin-backed bonds.

The new sovereign Bitcoin bond is expected to collect $500 million to fund the construction of Bitcoin Community, a new tax-free seaside city. The venture would apparently mine Bitcoin and other cryptocurrencies using geothermal energy from a nearby volcano.

In accordance with the measure, an extra $500 million will be put aside for the purchase of Bitcoin, with the appreciation of the crypto asset passed on to bondholders.

The article alleges that the measure, which President Bukele must yet sign into law, has been criticized by credit rating agencies and the International Monetary Fund (IMF). As a consequence, El Salvador’s bonds have been selling at a “severe discount” because investors are concerned about the possibility of default.

According to the Bloomberg story, the government originally planned to offer Bitcoin bonds in the first quarter of 2021 but has repeatedly delayed the issuance owing to BTC’s price fall.

According to a report by Decrypt, “separate cryptocurrencies from all other assets and financial instruments, including central bank digital currencies (CBDCs), and separate Bitcoin from the rest of the crypto market, defining them as digital securities.”

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