(Kitco News) - The Congress of El Salvador has voted in favor of the Digital Assets Issuance bill, paving the way for the issuance of the country’s first round of ‘volcano bonds’ to pay down foreign debt and build up the ‘Bitcoin City’ investment haven.
The bill passed on Jan. 11 by a comfortable majority – with 62 members voting for the bill and 16 voting against it – and it will become law once it is signed President Nayib Bukele.
The formal announcement was made by the country’s National Bitcoin Office (NBO) in a Twitter thread. “Today El Salvador builds on our first-mover advantage by passing landmark legislation establishing a legal framework for all digital assets that are not bitcoin,” they wrote, “As well as those issued on bitcoin. The law also paves the way for volcano bonds which we will soon begin issuing.”
The NBO wrote that the legislation also creates the National Digital Assets Commission, the new regulatory agency tasked with “applying the securities law and protecting the rights of digital asset purchasers as well as issuers in El Salvador, and of deterring fraudsters from operating” in the country.
The digital securities bill, which was introduced by Minister of the Economy Maria Luisa Hayem Brevé on Nov. 22, creates the framework for the legalization of all cryptocurrencies in El Salvador, separating crypto from other financial assets and establishing a distinct set of regulations to govern them. The bill is also intended to reassure potential volcano bond buyers that their investments will be secure.
President Bukele first proposed the idea of BTC-backed bonds, named for the Conchagua volcano, in November of 2021. Bukele’s plan is to raise $1 billion through the bond issuance, with half the money being invested directly in BTC. The other half would be used to build a large-scale bitcoin mining operation drawing on the Conchagua volcano for its power, and also to construct ‘Bitcoin City’, a commercial hub that would attract foreign investment to the country’s crypto and financial sectors.
Businesses operating in Bitcoin City would pay a 10% value-added tax, and no other taxes would be applied to their activities. The government hopes that these financial incentives – combined with cheap and reliable geothermal energy from the volcano – will enable them to become the ‘Singapore of the West.’
Buyers of the volcano bonds would receive a 6.5 percent return after five years, along with a fast-track towards Salvadoran citizenship. The latter could be very attractive to crypto community members by the time the bonds mature. The remaining profits would be split 50/50 between investors and the government as a ‘bitcoin dividend.’
Bukele’s plan calls for the bonds to be issued on Blockstream’s Liquid Network. iFinex, the parent company of both Bitfinex and Tether, would handle the transactions, with Bitfinex expected to obtain a license in the country to do the issuance, and dividends to be distributed through Blockstream’s asset management platform.
Bitfinex shared their own blog post in celebration of the bill’s passage. “Despite the bear market and Bitcoin’s price decline from $69,000 to its current price at the time of writing of $17,383, President Bukele has shown unwavering commitment to El Salvador’s Bitcoin strategy,” they wrote. “Bitfinex will be a technology provider for the nation’s Volcano Token, which is expected to move forward now that the new regulatory framework is in place.”
El Salvador was the first country in the world to make Bitcoin legal tender when they announced the adoption of the cryptocurrency in June 2021.