El Salvador plans to release a Bitcoin-backed “Volcano Bond”. The country already uses Bitcoin as legal tender, and other southern countries are expected to follow.
This is according to Samson Mow, CEO of JAN3. Mow, who helped design Volcano Bonds, spoke with David Lin, presenter and producer for Kitco News.
“The Volcano Bond is structured much like a traditional bond, except it’s backed by Bitcoin,” Mow said. “So the proposal that El Salvador is running with is a $1 billion bond increase with… $500 million in bitcoin purchases… So after a five-year period or a five-year freeze years, they will start selling some of the bitcoin they’ve bought, quarter by quarter. And Bitcoin appreciation will be shared with bondholders. The remaining $500 million, and that’s why it’s called Volcano Bond, will be invested in geothermal energy infrastructure and Bitcoin mining. And the design of the bonds is for a coupon of 6.5%. And of course, in the end… you will get your principal back.
The Volcano mark-to-market bond has not yet been launched and is currently awaiting legislative and regulatory approval. However, El Salvador’s finance minister said it was already oversubscribed by around $500 million. According to Mow, it was mainly bitcoin whales that showed interest.
In addition to El Salvador, the Central African Republic recently announced that it is adopting Bitcoin. Panama is set to adopt Bitcoin soon. Mow says nationwide adoption of Bitcoin is “inevitable.”
However, there are criticisms of Bitcoin as legal tender, including the IMF and much of the “legacy financial system”.
“I think it shakes up a lot of what they’ve built,” Mow said. “The systems in place now… cement the power of western nations and they certainly don’t like it when the global south starts to rise up and throw off the chains.”
Mow believes that as the United States struggles with its economy, developing countries will seek to escape the American sphere of economic influence through assets like Bitcoin.
He is not convinced that Bitcoin’s volatility makes it a problem for treasuries.
“I think the concept of Bitcoin volatility is very mainstream media…narrative,” Mow explained. “If you look at bitcoin over a four year horizon, if you look at the four year moving average, it has never gone down. So the problem is that people are looking at bitcoin as if it were a stock … [But] Bitcoin’s value proposition is long term.
Mow believes that developing countries are adopting Bitcoin “out of necessity” and that it will take some time for rich countries to catch up. He named Canada in particular.
“I don’t think… Canadians in general realize that we need bitcoin,” he said. “But we actually do… We have sold all of our gold reserves in the last two decades.”
Mow commented on the Canadian government’s freezing of financial transactions during the Freedom Convoy protests in Ottawa.
“It’s a lesson to the people, that if you cede control of your money to the government, then, well, it’s not your money anymore. But it’s an ad for bitcoin in a way… And I hope this ad will allow us to change the government of Canada in a few years. And [then] we will have a government that understands fiscal responsibility, understands money and understands bitcoin,” he said.
To learn about Mow’s concerns about central bank digital currencies (CBDCs) and his long-term outlook for Bitcoin adoption, watch the video above.
Follow David Lin on Twitter: @davidlin_TV
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