El Salvador postpones bitcoin bond offering

Finance minister attributes delay to recent market uncertainty

El Salvador has postponed the issuance date of its much-anticipated and closely monitored bitcoin-backed bond. The issuance was reportedly planned to take place between 15 – 20 March.

Zelaya says current market conditions “not favourable” 

In an interview on the Salvadoran TV show Frente a Frente on Tuesday, Finance Minister Alejandro Zelaya argued that current market conditions were not favourable for the potentially innovative bond offering. He stated: “I think this is not the time. There are some moves on the planet.” 

Zelaya outlined his preference for the offering to take place between March and April and added: “In May and June sometimes you can, but the market variables get different. After September, it is difficult to raise, unless you are previously funded, as in the case of bitcoin bond.”

The minister also clarified that the offering will not be issued by the government but the state-owned thermal energy company La Geo instead. The Salvadoran state will provide a sovereign guarantee.

Bitcoin City

At $41,925 at 12:30 (GMT) on Wednesday afternoon, bitcoin traded almost 10% below the level it stood at when El Salvador adopted it as legal tender last September and 39% below the all-time high that it reached in November. 

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President Nayib Bukele’s government has steadily acquired more bitcoin in the seven succeeding months and announced plans to build a ‘Bitcoin City’, which will harness geothermal energy to power bitcoin mining. 

The $1bn (£760,000) bond offering is supposed to fund the development and further bitcoin purchases. Also dubbed the ‘volcano bond’, it has been marketed with a 6.5% coupon and a dividend of 50% of the gain in the price of bitcoin after five years.

El Salvador’s interest in bitcoin has provoked consternation and criticism from a number of international financial institutions. These include the International Monetary Fund and the World Bank, with both highlighting the cryptocurrency’s volatility as a threat to financial and monetary stability. 

Last month, the ratings agency Fitch downgraded El Salvador’s sovereign credit rating from B- to CCC and said that its adoption of bitcoin as legal tender was damaging its chances of obtaining a $1.3bn loan from the IMF.

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