When are bitcoin bonds coming?

The questions come from our podcast recording with Alex. You can find them here.

BTC ECHO: We were both in El Salvador together. The trip is now six months ago. How do you watch the weather there with some distance?

Doctor Alex von Frankenberg: I remember a lot of positive things. We were very well received, met the Minister of Economy and the German Ambassador. But what was most important was the positive energy, the hope that I felt there. On the one hand, the president (Nayib Bukele, editor’s note) is trying to modernize the country. On the other hand, Bitcoin also brings hope. El Salvador has no currency of its own, is plagued by civil war and gangs. This is why the country can only truly win. And Bitcoin promises hope and real economic benefits.

BTC ECHO: Let’s talk about Volcano Bonds, i.e. Salvadoran government bonds with Bitcoin dividends. At the end of Bitcoin Week, Bukele announced that he wanted to build Bitcoin City and fund it with Volcano Bonds. But Bukele has now missed the launch time. Do you think bonds are coming?

Doctor Alex von Frankenberg: Let’s take a step back. We see different players regarding the adoption of Bitcoin. We have come a long way with individuals. On the business side, it was above all Michael Saylor who broke the first barriers. Additionally, we are now seeing the first ETFs. What is special is that El Salvador was the first country in the world to make Bitcoin legal tender. And the idea is that I’m doing something good for the country. Bukele’s intention was modernization. In addition, citizens have hard economic advantages, since transfer costs (fees for transfers from abroad, editor’s note) can be drastically reduced.

Bitcoin bonds promise greater access to the capital market. After all, El Salvador is a bad debtor and normal bonds also have a high default yield of 30%. Bitcoin bonds, however, only have an interest rate of 6.5%. If you take a close look at the structure, you can replicate it yourself cheaply as an investor. For example, you can buy Bitcoin for 500 euros and a normal Salvadoran bond for 500 euros. It is more attractive for investors. This may of course be the reason why the show is delayed.

On the other hand, one can contribute to the development of a poor country. And it could also be appealing to many.

BTC ECHO: What interests me is also the game theory level. Other states will have noticed that Bukele goes into debt and buys Bitcoin from him. This gives him an advantage. Do you expect other countries to start investing in BTC as well?

Doctor Alex von Frankenberg: Exactly, that’s the big question. What is the impact of El Salvador? Now there are two options. First, bitcoin adoption in El Salvador failed. But they haven’t lost much. On the other hand, it might bring something. And there are a lot of arguments for that. I tweeted in July last year that if we see a positive impact, like stronger economic growth or reduced crime, El Salvador could be a model for other countries. And this question is open. But if the impact is measurably positive, we’ll see a long list of countries adopting Bitcoin, with corresponding price effects.

Want to know more about the adoption of Salvadoran bitcoin. You can find out more in issue 54 of BTC-ECHO magazine!