A BITCOIN BOND IS COMING
Every time I get to think a little about El Salvador, I see the ability of a state looking for the alternative to settle its debt. This year has been the year of innovation how crypto can change the landscape. When you are a small country your economy is dependent of your neighboring countries and big allies. You need to find ways to stay relevant and at the same time keep investors happy.
In order for a serious country to borrow money, they issue bond with plan of maturity far in the future. During that time the holders earn interest for a while or they can decide to sell. Literally the country offering the bond will make money via taxes, innovation to stimulate the economy. It is like a juggle to get everything running. Sometimes it is not perfect but investors are looking for consistency and a way to get their money back. At the end investors recoup and the country is still borrowing money.
El Salvador has found new way to push Bitcoin to new high. After legalizing Bitcoin not long ago They will issue bond in crypto precisely Bitcoin. Now this is for sure the bonds they issued in dollar will fall in value. They fell down to nearly 60% for a country needed help from IMF. Having Bitcoin as legal tender does not help much. It helps in other circumstances but not in the way the controlling money grabber wants.
Holding El Salvador bonds is like a distress knowing the value is not there. The worry the investors always have, can you pay us back? They are asking more base point, in other term more yields to recoup their investment quicker. That way more revenue will go to bond holder instead of really helping the country. This is what happen in a debt driven system. At the end of the day Salvadorians will pay for all of these as usual. source
For the government it is all numbers to get by. The plan is slated like this, 10 year tokenized Bitcoin bond that could pay up to 6.5% per year. To sweet the pot, it will have a dividend of 50% with Bitcoin gain as long the country recoup its investment. Knowing the trajectory of crypto these days, it is a melancholy to think crypto will turn sour. When you think crypto it seems you think of a bull market at perpetuity. I think Bukele see the writing on the wall and trying to move away from the dollar. He surely will maintain this winning ratio with Bitcoin.
If there is one thing we learn from crypto, it is a lot smoother to rely on the community knowing we are growing together instead of relying on a controlling fiat where the agenda is set to help mostly the one percentile. At the end of the day it is a proposition for the country to push the Bitcoin bond. Nothing is set in stone. Volatility could be a factor why crypto is lingering these days. I do not know which one is worst inflation or volatility. Your emotion has a lot to do with them. Inflation propels crypto and maybe lower volatility.
We all know crypto is slowly taking over. It may take a moment but it is coming in due time. The more they need to know about this tokenized bond will help investors to realize if this is something they can jump on. Some already willing to invest cause it is Bitcoin back by a country. As you know having a Bitcoin bond means you are buying the debt of the country underlying in Bitcoin value. It has nothing to do with Bitcoin or blockchain directly.
It is the same connotation for the US dollar bond. You are buying the country debt in dollar. Since the dollar has been around for a while you feel more at peace though. In El Salvador Bitcoin is legal tender so they can do that as long it is approved to proceed. Intentionally Bitcoin is reaching new high, the room will be quiet for this bond market to grow. I have to say EL Salvador is looking for ways to put crypto to work. Time will tell if this preemptive move really pays dividend.
Posted Using LeoFinance Beta
