Everything you need to know about Bitcoin City

Utkarsh Gupta
Source: Forbes

It was a historic event when El Salvador declared Bitcoin as a legal tender in the country. It was the first nation to commence legalizing Bitcoin, and since then, it hasn’t looked back. Nayib Bukele, El Salvador president is now planning to build a “Bitcoin City” financed by $1 billion Bitcoin bonds.

Additionally, the city will run on geothermal energy produced from a volcano. The developments have been thick and fast and in this article, we will take a closer look at the proposed plans for this monumental project.

Bitcoin City; a prospect heavily dependent on BTC’s prosperity?

On November 20th, Bukele announced his plans for Bitcoin City at the LABITCONF conference. Samson Mow, Blockstream’s chief strategy officer, joined the El Salvador president on stage. It was reported that El Salvador entered a partnership with Blockstream and Bitfinex to issue the $1 billion bitcoin bonds.

The government itself will be issuing the billion-dollar bonds and tokenized on Blockstream’s Liquid side-chain. Half of the funds or $500 million will go towards the construction of the city, and the other half will be invested in Bitcoin. According to data, the bonds will carry a 6.5% yield. El Salvador also aims to create a government securities law and grant a license to Bitfinex Securities to process the bond issuance. Now, it gets interesting.

Mow explained that the bond will have a five-year “lock-up” period and the coupon will increase due to dividend. Moreover, he suggested that Bitcoin should be worth $1 million in five years, and that is how it will eventually pay off all the investors in the bond. Therefore, all bets are on Bitcoin.

BTC bonds; a massive risk against a country’s debt situation?

According to experts, El Salvador’s bond performance based on Blockstream’s model suggesting BTC will reach $1 million, is extremely aggressive. Another issue was highlighted by the International Monetary Fund. Addressing BTC’s characteristics, IMF said,

“Bitcoin’s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability. Its use also gives rise to fiscal contingent liabilities. Because of those risks, Bitcoin should not be used as a legal tender.”

Moreover, Bitfinex’ed, a popular crypto commentator, was critical of Bitfinex’s involvement. He tweeted,

Intentions are right, will Results follow?

The development of Bitcoin City is definitely revolutionary. However, the process will be anything but smooth and a bearish market will test the plans’ foundation. For the time being, the idea is brilliant but only time will unfold its execution.