El Salvador Bitcoin Bond Commitments Top $500 Million

Updated by Ryan James
In Brief
  • Investor commitments towards El Salvador's bitcoin-backed bonds have now crossed $500 million, according to Samson Mow.
  • The comes as the country's finance minister said he expects that the first bond will be issued by March 20.
  • El Salvador has seen increasing attacks from legacy institutions over its decision to make bitcoin legal tender.
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Investor commitments towards El Salvador’s bitcoin-backed bonds have now crossed $500 million, according to Blockstream chief strategy officer Samson Mow.

The news comes as El Salvador finance minister Alejandro Zelaya revealed on Feb 8 that the first bond will be issued sometime between March 15 and March 20.

The Central American country is planning to sell $1 billion in U.S. dollar-denominated 10-year bonds with a coupon of 6.5%. The securities will be issued on Blockstream’s Liquid Network, a sidechain protocol built on top of the Bitcoin blockchain.

Samson Mow, the main architect of the bitcoin bond, on Friday told BeInCrypto that the bond had received more than $500 million in verbal commitments at the time he stopped counting a few weeks back.

While Mow could not discuss any further details, the figure shows an increase of over 66% in commitments from the $300 million reported early December. It also indicates that the bond is now more than 50% filled four weeks ahead of launch.

The final term sheet – a non-binding agreement highlighting the basic terms and conditions of an investment – may not be ready just yet. On Feb 8, El Salvador finance minister Zelaya said in an interview that he expects the country’s first bitcoin bond to be issued by March 20.

“If we really want to build this country, we have to invest in it like this,” Zelaya is quoted as saying, adding that the bitcoin bonds “will comply with all the regulations of the financial markets.” The finance minister estimates that the bond will be oversubscribed by up to $500 million.

Mow says to ‘keep eyes on goal’ as attacks on bond mount

El Salvador plans to use half of the $1 billion from its first bond raise to construct energy and bitcoin mining infrastructure, and the other half to buy even more bitcoin. In total, the country intends to issue up to 10 bitcoin bonds in the future, with proceeds going toward the building of a new city running entirely on bitcoin, and to pay off its debt to the International Monetary Fund (IMF).

The bond will be sold in $100 tranches, a structure that “democratizes access”, allowing both institutional and retail investors to participate. But not everyone is thrilled with the idea. The IMF has repeatedly warned El Salvador, the first country to make bitcoin legal tender, against issuing bitcoin bonds.

Earlier this week, ratings agency Fitch downgraded El Salvador’s long-term foreign currency issuer default rating (IDR) from ‘B-’ to ‘CCC’, citing the country’s adoption of bitcoin as an official currency last year as a key factor influencing the change.

Samson Mow dismissed what he called “attacks from the legacy system”, warning in a tweet Thursday that these “will only intensify in the weeks ahead of the Volcano Bond launch. Keep your eyes on goal.”

Gabor Gurbacs, a director at asset manager VanEck said: “The ratings agencies actually do a lot of damage to current bondholders and states via unexplainable downgrades. If anything, El Salvador’s economic outlook has gotten better, not worse. Plus, the Bitcoin bond gives an additional mechanism to pay back the current dollar bond debt.”

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