Why El Salvador's Bitcoin City Has Just Suffered a Huge Setback

Why El Salvador’s Bitcoin City Has Just Suffered a Huge Setback

El Salvador’s grandiose ambitions to develop Bitcoin City have suffered a major setback, with the country’s finance minister revealing that the distribution of so-called “volcano bonds” has been postponed.

Through these Bitcoin-backed bonds, Nayib Bukele’s government hopes to raise $1 billion. While $500 million would go toward increasing the country’s Bitcoin holdings, the other half would go on gleaming new infrastructure that would allow crypto to be mined using geothermal energy.

Last November, President Bukele told a rowdy audience that Bitcoin City will be shaped like a huge coin, with everything from residential zones to stores, restaurants, and railroads dedicated to the cryptocurrency.

However, finance minister Alejandro Zelaya cautioned that now was not the time to issue the bonds that would fund all of this in an interview with local television. BTC’s value has plummeted following Bukele’s major disclosure, plunging 38% from its all-time high of $68,789.63.

He added Salvadoran authorities want to wait until market circumstances are more favorable, blaming the uncertainty created by Russia’s invasion of Ukraine. Bitcoin’s value has risen.

The volcanic bonds are still expected to debut in the first half of 2022, according to Zelaya, although the date may be moved back to September. Any more delays, he cautioned, would result in new issues, and he said:

“It is tough [to get financing] after September if you go to the foreign market.”

Losing Momentum?

El Salvador is disappointed by the delay, not least since the nation had planned to sell Bitcoin bonds between March 15 and 20.

Despite this, Zelaya claims that the bonds will be “significantly” oversubscribed, with demand reaching $1.5 billion – $500 million more than the government plans to raise.

According to a recent research released earlier this week by El Salvador’s Chamber of Commerce and Industry, just 3.6 percent of local firms think BTC has increased their sales since it became legal money six months ago.

Bukele also claimed in September that the nation was investing millions of dollars in Bitcoin, with the president apparently “buying the drop” many times in recent months from his smartphone.

All but one of these transactions were made at prices significantly higher than Bitcoin’s current worth of $42,000, implying that El Salvador is presently facing some significant financial losses.

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