El Salvador's 'Volcano Bonds' Secure Regulatory Approval

Regulatory approval sets stage for El Salvador's 2024 launch of Bitcoin bonds.

El Salvador’s much-awaited Bitcoin bonds, fondly termed “Volcano Bonds,” have secured regulatory approval, setting the stage for their debut in early 2024. The Digital Assets Commission of El Salvador sanctioned this approval, marking a significant stride in the nation’s quest to harness digital assets for sovereign debt reduction and the development of the proposed “Bitcoin City.”

The Digital Assets Commission of El Salvador has given its nod for the issuance of the eagerly awaited Bitcoin bonds, informally known as “Volcano Bonds.” These bonds, crafted to tap into the potential of digital assets, received regulatory sanction in December. The National Bitcoin Office (ONBTC) formally acknowledged this development in an announcement.

Investors and cryptocurrency aficionados can eagerly anticipate the issue of the Volcano Bonds in the first quarter of 2024. Nayib Bukele, El Salvador’s Bitcoin-friendly leader, also alluded to this progression through a cryptic social media post querying, “Wen volcano bond?”. This was followed by reposts and references to the bonds’ expected issuance in Q1 2024.

The journey of El Salvador towards the launch of the Volcano Bonds commenced in November 2021 when the idea of issuing such bonds was first mooted. A landmark moment was witnessed on January 11, 2022, when El Salvador enacted pioneering legislation that laid down the legal framework for Bitcoin-backed bonds. These bonds are dual-purpose: they aim to mitigate sovereign debt and finance the ambitious “Bitcoin City” project.

The Volcano Bonds are set to make their first appearance on the Bitfinex Securities Platform, a registered trading platform for blockchain-based equities and bonds situated in El Salvador. This step signifies the birth of Bitcoin-based capital markets in the country, indicating a growing acceptance and incorporation of cryptocurrencies into the financial sector.

Investors in the Volcano Bonds can expect a commitment spanning a decade, as these bonds are slated to have a maturity period of ten years. Moreover, they will provide a competitive annual return of 6.5% to their holders. This appealing return rate may attract considerable attention from both local and international investors looking to diversify their portfolios.

El Salvador has recently embarked on a significant Bitcoin mining project, valued at $1 billion, with a capacity of 241 megawatts. This ambitious initiative leverages the country’s plentiful volcanic resources through a strategic alliance with Luxor Technology. The mining operations will be primarily fueled by the Conchagua volcano, underscoring El Salvador’s dedication to exploiting its unique geographical benefits for cryptocurrency mining.

The sanctioning of the Volcano Bonds comes nearly 21 months after the country’s erstwhile finance minister, Alejandro Zelaya, initially declared the launch date as mid-March 2022. The postponement in the issuance of these bonds underscores the careful approach adopted by the El Salvadoran government to ensure regulatory compliance and a secure investment environment for all stakeholders.