El Salvador could launch its bitcoin bond next week, but some key details remain unclear

El Salvador could launch its first so-called “bitcoin bond” next week. However, it seems there are some pending items that must be resolved before the bonds hit the market, including the finalization of legislation that would provide the necessary licenses to companies offering tokenized securities.

Based on the government’s timeline, the bond could be ready as early as this Tuesday. Speaking on a local television show Friday, El Salvador finance minister Alejandro Zelaya confirmed that the government is still targeting a previously-reported timeline between March 15 and March 20 to issue the bond. 

“We are still finishing some details, everything is almost ready,” Zelaya said during the Spanish-language interview. However, he mentioned that the final date will ultimately be a matter of picking the correct timing, mentioning that the war between Russia and Ukraine is now an unforeseen factor creating uncertainty in the international market.

New securities legislation still pending 

El Salvador hopes to raise $1 billion through the bitcoin bond, which is also being referred to as the “volcano token” or “volcano bond.”

The bond, first announced by El Salvador’s president Nayib Bukele in November when introducing the idea of a planned Bitcoin City, will be issued on Blockstream’s Liquid Network sidechain. People will be able to use USD, BTC and USDT (Tether) to purchase the bond, with a minimum purchase amount of $100. 

Half of the $1 billion would be used to buy more bitcoin, and the other half would go toward bitcoin mining and infrastructure. The bond will have a 6.5% coupon and mature in 2032. 

Before launching the bitcoin bonds, El Salvador plans to create a new framework for regulating several aspects of digital assets, including the issuance of tokenized securities. However, little is known about what each law would entail and how close the government is to approving these laws. 

As of now, at least one crucial milestone ahead of launching the bonds appears to be unfinished. 

Tether and Bitfinex CTO Paolo Ardoino told The Block that the government is working on a way to license companies offering digital assets such as tokenized securities. This must happen before the bond issuer could raise funds through the Bitfinex Securities platform.

But as of mid-February, Bitfinex Securities had not applied for a license because the legal framework for doing so was not yet solidified.

When The Block asked Bitfinex for clarification on March 10 about the status of its license, a spokesperson replied: 

“In order to facilitate the trading of the token, Bitfinex Securities will apply for a license to operate under the El Salvador digital securities regulatory framework, once this is passed into law.”

El Salvador’s government does have a track record of moving bitcoin-related business along quickly. But as far as The Block can tell, neither the text of the laws nor the key information document for the bonds have been made public just days before the window when the first bitcoin bond could launch.

El Salvador’s president Nayib Bukele recently hinted that the legislative process is moving along. In a February 20 tweet, Bukele wrote in English: 

“I’m sending 52 legal reforms to congress, to remove red tape, reduce bureaucracy, create tax incentives, citizenship in exchange for investments, new securities laws, stability contracts, etc. The plan is simple: as the world falls into tyranny, we’ll create a haven for freedom.”

It appears the list of pending reforms has grown since January, when Bukele tweeted that his administration would be sending 20 reforms to El Salvador’s legislative assembly, aimed at “innovation and financial freedom.”  Zelaya explained a few days later that these laws in part would cover regulating the bitcoin bonds, and would center on items such as issuing securities and supervising exchanges.

“El Salvador is actually writing a new piece of law that is extremely advanced in their support of cryptocurrencies and tokenized securities, so they are trying to set themselves up to be at the forefront of the crypto revolution also when it comes to securities,” Ardoino said.

How much can El Salvador raise for the bitcoin bond?

One of the biggest questions surrounding the bitcoin bond continues to be how many people are actually interested in contributing to it — and how much money they will be willing to put down. In a previous television interview, Zelaya said that he expected the bond to be oversubscribed by at least $500 million. 

Ardoino told The Block that it had tallied up about $500 million in soft commitments in mid-February, and has not provided a new update since. 

While the bonds are expected to be popular with bitcoin enthusiasts, experts have already raised concerns about whether the bond will be an attractive investment. Moreover, the war in Ukraine has added another level of uncertainty to the already-volatile crypto market as well as global stock markets.

Another potentially limiting factor is that U.S. citizens, residents and companies will not be able to participate in subscribing to the bond. Tether and Bitfinex no longer operate in the U.S. market, and in 2021 the firms settled and were fined by both the state of New York as well as the Commodity Futures Trading Commission. 

“We cannot support U.S. customers, for that reason we will not make this product available to U.S. persons,” Ardoino told The Block, mentioning that he still believes the bond will draw healthy interest. Ardoino indicated that other countries in addition to the US may also be blocked from participation. 

How the process will work

Ardoino told The Block that Bitfinex is acting as the technology provider for the bitcoin bonds. The firm is setting up a company in El Salvador called Bitfinex El Salvador, S.A. de C.V. The issuer of the bond will be a company in El Salvador, Ardoino said, which will raise the funds and deliver a so-called “key information document” with disclosures to those interested in participating in the bond offer. 

The issuer will then raise the bond via Bitfinex Securities, which will undergo know-your-customer procedures for users before they pledge funds to participate in the raise.

Once the raise is complete, the funds will be delivered to the issuer, which will then deliver the tokens to Bitfinex Securities. After that, Bitfinex Securities will be able to open a secondary market for the token.