Erupt

El Salvador is planning a volcano-powered “Bitcoin City,” but its moves could be economically implosive

Tuesday, November 23, 2021 by Robinhood Snacks | Disclosures

Not an Onion headline... El Salvador said it plans to build a volcano-powered Bitcoin City featuring a central plaza that looks like a massive Bitcoin symbol. Construction is scheduled to start next year. This past September, the Central American nation became the first country to adopt Bitcoin as legal tender, alongside the US dollar. Last week, 40-year-old Salvadoran President Bukele said Bitcoin City would be built next to a volcano, which would power BTC mining, and wouldn’t have any taxes, except a sales tax. Bukele is known for his crypto bullishness and authoritarian tactics (and his backward baseball cap).

  • Bit bonds: El Salvador plans to create the world’s first government-issued “Bitcoin bonds.” Half the funds from the $1B issues would be converted to BTC, and the other half would be used for city infrastructure and mining.

Bit volatile... El Salvador is one of Latin America's poorest countries, with 23% of its population below the poverty line. Its existing gov’t bonds (aka: debt) are already categorized as junk grade, and the Bitcoin-bonds plan is getting side-eye from financial experts. Meanwhile, El Salvador is spending hundreds of millions on its Bitcoin rollout, which Bukele believes will improve financial inclusion and attract spending from foreign crypto investors.

  • Salvadorans can pay for anything in Bitcoin through gov’t-run BTC wallet “Chivo” — from McMuffins to taxes, rent, and even salaries. Bukele says Chivo now has millions of users, but USD is still the most used currency by far.
THE TAKEAWAY

Larger scale = greater risk… By adopting BTC as legal tender, El Salvador is taking a wide-scale risk for 6.5M citizens. The IMF is worried that BTC's volatility — and history of rapid plunges — poses major threats to El Salvador's economy. In a September poll, 80% of Salvadorans said they lacked confidence in BTC, and protests have erupted over fears it could destabilize the economy further. Still, it could be a valuable experiment for other countries considering Bitcoin as a national currency. So far: only Panama.