El Salvador and The Latest Bitcoin Maneuver
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One country’s bid to control its narrative gathers momentum.
Nayib Bukele, El-Salvador’s young dictator is planning to build a bitcoin city, which will be backed by the decentralized cryptocurrency.
In a move that might seem fool hardy to some or extraordinarily perspicacious to others, Bukele is staking his country’s fortunes to bitcoin.
This city will be powered by geothermal energy and with apart from value added tax, residents will be subject to zero taxation: no income or capital gains tax.
For this to work, the following steps will be taken:
- The issuance of $1 billion in bitcoin bonds
- A ten year bond in US dollars.
- The coupon rate would be set at 6.5%, with no trades and payments for 5 years with bond sales taking place at the yield of 146%, thereafter.
In layman terms, It is akin to Nike manufacturing 100 limited edition air Jordan sneakers, with Mr. Salvador spotting a rare business opportunity, and then goes ahead to borrow $10,000 at 6.5% to purchase 5 pairs to keep at home for 5 years and once this time frame has elapsed, goes ahead to sell at $100,000, repays the bank and keeps the massive profits for himself.
A massive gamble right?
But given that bitcoin is a limited edition cryptocurrency, without any of the drawbacks of fiat money, It is an incredibly risky but a well thought out strategy; one that is contingent on the future scarcity and the resulting high value of this brilliant contraption.
When you think of the fact that Mexico has done the equivalent with oil and has made several billions of dollars by trading options and hedging for the last 12 years, El-Salvador really has nothing to lose.
Make no mistakes at all about this, a vast number of wall street establishments are purchasing bitcoins on a huge scale and will see the experiment or gamble in this tiny Latin American country as another investment opportunity not to be passed up.
Which brings me to the next question: why hasn’t Africa harnessed this once in a lifetime chance?
