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President Nayib Bukele speaks during the announcement on the Bitcoin City project in Mizata, El Salvador. Photo: AFP

El Salvador to build Bitcoin City in bid to become ‘Singapore of Latin America’

  • The project, funded by bitcoin-backed bonds, will be built near the Conchagua volcano which will provide energy for mining
  • President Nayib Bukele said the city will be free of income, property and capital gains taxes
El Salvador intends to issue the world’s first sovereign bitcoin bonds and build Bitcoin City, which will be free of income, property and capital gains taxes, President Nayib Bukele announced in the beach town of Mizata to a crowd of cheering bitcoin enthusiasts. 

El Salvador plans to issue US$1 billion in tokenised US-dollar denominated 10-year bonds to pay 6.5 per cent via the Liquid Network, according to Samson Mow, chief strategy officer of Blockstream.

Half of the funds of the so-called “volcano bond” will be converted to bitcoin and the other half will be used for infrastructure and bitcoin mining powered by geothermal energy, Mow said, while sharing the stage with Bukele.

After a five-year lock-up period, the government will begin to sell its bitcoins and pay an additional dividend to investors, Mow said.

Bitcoin launch sparks wave of cryptocurrency speculation in El Salvador

Blockstream models show at the end of the 10th year of the bond, the annual percentage yield will be 146 per cent due to bitcoin’s projected appreciation, Mow said, forecasting bitcoin will hit the US$1 million mark within five years. 

Mow said the lock-up period on the bonds is designed to take US$500 million in bitcoin out of the market for five years, adding to the tokens’ scarcity and value. 

Bitcoin reached an all-time high above US$68,000 earlier in November, and has declined nearly 20 per cent in the weeks since. Bukele has more than once responded to declines in the price of bitcoin by “buying the dip”. As of the end of October, the country owned at least 1,100 of the tokens.

President Nayib Bukele said the Bitcoin City will be built near the Conchagua volcano. Photo: AFP

The plans will make El Salvador “the financial centre of the world” and “the Singapore of Latin America,” Mow said, adding he expects other countries to follow suit.

“The first countries that do this will have a massive advantage. This is the beginning of nation state bitcoin FOMO,” Mow said, referring to the term “fear of missing out”.

Investors will also be awarded permanent residence and be fast-tracked to citizenship, Mow said while standing next to Bukele. 

Bitcoin City will be built near the Conchagua volcano which will provide energy for mining, Bukele said, adding that bitcoin bond issuance will begin in 2022.

The only tax in Bitcoin City will be a 10 per cent value-added tax to fund city construction and services, he said.

In September, El Salvador became the first country to accept bitcoin as legal tender, a move met with both enthusiasm and protests in the months since. 

This article appeared in the South China Morning Post print edition as: Building a Bitcoin City