A volcano Bitcoin bond could save Argentina

Gerard explains that “Holders of El Salvador’s existing sovereign debt (current holders of Salvadoran bonds) weren’t impressed”For the news, because for them “Volcanic bonds would be a strictly worse investment than buying existing bonds in the country and covering them with bitcoins”, due to the volatility of crypto assets.

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Nor would it be an option to mine bitcoins in El Salvador for the specialist: “The problem is that mining bitcoins in El Salvador does not make economic sense. Bitcoin mining is a competitive waste of electricity process to guess a winning number every 10 minutes or soGerard explains.

This Bitcoin City, which, incidentally, has already announced that it is tax-exempt, only VAT will be collected (which is 10% in the country).

By exiting the traditional international credit market system, Nayib Bukele threatens to break down the structures. “Why would I lend them money at this level when it comes to distressed credit?” He said Kevin Daly, fund manager of Aberdeen Standard Investments. “They are excluded from the bond market [convencionales], so they cannot be financed that way. I don’t know who is going to buy these bonds, but it sure won’t be us”.

Optimists for their part assure that this is the way of the future. The new “bitcoin bonds,” which will be sold in tranches of $ 100 in a deal to be organized by crypto exchange Bitfinex, may find a more receptive audience among small investors and crypto enthusiasts. “This bond offering is something that we believe will appeal to a wide range of investors ranging from cryptocurrency investors, performance seeking investors, ‘hodlers’ and ordinary people.“, He said Samson Mow, chief strategy officer of blockchain technology company Blockstream, which has been advising the Bukele government on the plans. “We believe that this bond has the potential to accelerate hyperbitcoinization and generate a new financial system built on bitcoin.“.

The enemy, the IMF

It is not just any amount: US $ 1,000 million is what El Salvador was negotiating with the International Monetary Fund. The same that he will put to finance the Bitcoin City. Your next debt payment is a $ 800 million bond due in January 2023. That bond is currently trading at a price of less than 84 cents on the dollar, and a yield of nearly 25 percent, indicating considerable anxiety about El Salvador’s ability to make the payment.

El Salvador faces problems to acquire international credits in multilateral organizations. For investors, Bukele cannot be trusted due to “authoritarian” actions, his estrangement from the USA and a violation of “democratic institutions”. El Salvador is in a serious economic liquidity problem.

The Fund has already established the first conditions for El Salvador: a fiscal adjustment equivalent to 4% of GDP in 3 years, which according to INCAE economist Rafael Lemus implies cutting expenses by 2.6% of Gross Domestic Product and increasing income by 1.4% of GDP . The first means reducing public spending by US $ 715 million and the second increasing collection by US $ 315 million.

These are conditions that Nayib Bukele is not willing to grant, that is why he places his trust in cryptocurrencies that do not require any conditions.

Volcano Bonus = GDP Coupon

The PBI coupons created by Roberto Lavagna in the government of Nestor Kirchner They represented a payment commitment based on the growth of the country’s Gross Domestic Product. The payment was made to the extent that a pre-established growth goal (of the order of 3% per year) was exceeded.

From 2006 to 2012, the GDP coupon consumed no less than US $ 10,600 million that the country had to pay to the bondholders. El Salvador with Bitcoin makes a similar bet, blindly trusts the advancement and appreciation of the cryptoactive, to be able to pay the bonds.

Both this Nayib Bukele project and Wyoming’s decentralized autonomous organization (DAO) act and the MiamiCoin and NYCCoin projects are early pieces of this future. In Wyoming, the new DAO law sets rules for fully digital vehicles to be on an equal footing with traditional paper-based corporations, allowing many corporate actions to be automated. ANDMiami Mayor Francis Suarez and New York City Mayor-elect Eric Adams have embraced the concept of City Coins, which gives their citizens a digital currency that generates Bitcoin.

Opinions are divided and the future is uncertain. But if the Bitcoin City does work, why couldn’t Argentina finance itself in this way? The problem is always the same: credibility. With a track record like ours, private individuals or holders of Bitcoins will be more reluctant to buy Argentine bonds.

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A volcano Bitcoin bond could save Argentina

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