El Salvador plans to issue a Bitcoin-backed “volcano bond.” The country is already using bitcoin as legal tender, and other countries in the global south are expected to follow suit.
This is according to Samson Mao, CEO of JAN3. Mow, who helped design the Volcano Bonds, spoke with David Lin, Kitco News anchor and producer.
“The structure of the Volcano Bond is very similar to a traditional bond, except that it is backed by Bitcoin,” Mao said. “So the proposal by El Salvador is to raise a billion dollars in bonds with … 500 million dollars to buy bitcoin … so, after a period of five years or five years, they will start selling some of the bitcoins that they have bought quarter by quarter.” . The estimate of the value of the bitcoin will be shared with the bondholders. The other $500 million, which is why it’s called the Volcano Bond, will be invested in geothermal infrastructure and bitcoin mining. The design of the bond is a 6.5 percent coupon. And of course, eventually… you’ll get your principal back.”
The Volcano Bond being marketed has not yet been released to the market, and is currently awaiting legislative and regulatory approval. However, El Salvador’s finance minister said it had already oversubscribed by about $500 million. According to Mow, it is bitcoin whales that have shown interest.
In addition to El Salvador, the Central African Republic recently announced that it is adopting Bitcoin. It is expected that Panama will soon adopt Bitcoin. Mow says nationwide adoption of Bitcoin is “inevitable”.
However, there are critics of bitcoin as a legal currency, including the International Monetary Fund and much of the “old financial system”.
“I think that overturns a lot of what they’ve built,” Mao said. “The regimes that are in place now … strengthen the power of Western countries and they certainly don’t like it when the Global South begins to rise up and unshackle.”
Mow believes that while the United States struggles with its economy, developing countries will seek to escape the United States’ economic sphere of influence through assets such as Bitcoin.
He is not convinced that bitcoin’s volatility makes it a problem for government Treasuries.
“I think the concept of Bitcoin volatility is a very mainstream media… narrative,” Mao explained. “If you look at Bitcoin on a four-year time horizon, if you look at the four-year moving average, it will never go down. So, the problem is that people look at Bitcoin as if it were a stock… [But] Bitcoin long-term value proposition.
Mao believes that developing countries are adopting bitcoin “out of necessity,” and that it will take some time for rich countries to catch up. Canada in particular.
“I don’t think… Canadians in general understand that we need Bitcoin,” he said. “But we actually … have sold off all of our gold reserves over the past two decades.”
Mao commented on the Canadian government’s freezing of financial transactions during the Ottawa Freedom Caravan protests.
“This is a lesson for the people, that if you give up control of your money to the government, then, well, it’s not your money back. But it’s an advertisement for Bitcoin in some way…and hopefully this announcement will allow us to change the government of Canada in a couple of years. And [then] We will have a government that understands fiscal responsibility, that understands money, that understands bitcoin,” he said.
To learn about Mow’s concerns about Central Bank Digital Currencies (CBDCs), and his long-term expectations for Bitcoin adoption, watch the video above.
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