The government once again failed to fulfill its promise to issue volcanic bonds in the first quarter of 2024

“Volcano Bonus has just received regulatory approval from the Digital Assets Commission. “We estimate that the bond will be issued during the first quarter of 2024. This marks the beginning of the new capital market in Bitcoin in El Salvador,” announced the national office of Bitcoin (ONBTC) on its official X account in December 2023.

These bonds were first revealed in November 2021, the same day that the creation of Bitcoin City was announced, which is still not a reality.

President at that time Nayib Bukele He said that the operation was planned for March 2022 and that it would be a $1,000 million issue: half of the money would be used to buy more Bitcoins and the rest would be used to build that city. Conchagua Volcano.

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However, months later, the value of the cryptocurrency began to decline, even falling below the $20,000 threshold.

Not much has been heard about Bond since then. The last person to reference them was Paolo Ardoino, technology director at Bitfinex, the company that will be in charge of the issue. He commented that they would be ready by September 2023. On that occasion, there was no response from Bukele.

And then the previously established deadline was also not met, as the first quarter of 2024 ended without issuing volcano bonds or announcing their operation.

The issue of Bitcoin has been consistently on President Bukele’s media agenda since prices began rising.

The official also assured that he kept a part of the alleged treasure in El Salvador’s cryptocurrency, approximately 5,700 Bitcoins, in a cold wallet in a safe. And he will deposit one cryptocurrency into that repository every day.
But the idea of ​​issuing volcano bonds seems to be missing from the President’s plans.

The crypto world has great expectations about this product, which the government of El Salvador itself wanted to bring back into the public spotlight in December 2023, even holding a meeting with investors in the sector , as reported by cryptonoticias media specializing in this type. Of subjects.

According to that medium, the announcement was made during a virtual meeting with the characters that are part of the plans for the broadcast. They are Juan Carlos Reyes, President of the National Commission for Digital Assets (CNAD); Paolo Ardoino, Chief Technology Officer of Bitfinex, and Jesse Knutson, Chief Operating Officer of Bitfinex Securities.

“It is now certain, the long-awaited El Salvador Bitcoin bonds will finally be issued during the first quarter of 2024,” American bitcoiners Stacey Herbert and Max Kaiser, members of the government’s National Bitcoin Office, said, CryptoNoticias reported. In charge of the infrastructure of the Volcano bond will be Bitfinex, a company with great influence in the government of El Salvador and from which more than 80% of the bitcoins come out of “cold wallets”.

low interest just because

Originally, according to Alejandro Zelaya, Finance Minister at the time, it was an operation structured for an interest of 6.5% with a maturity of 10 years.

According to several economists who have opined on the subject, this is absurd, as the interest on a conventional bond issuance from El Salvador would currently exceed double digits.

“(Volcano bonds) are not issued because nobody wants them… There is no demand for El Salvador’s debt, that’s why the interests are so high.”

Aaron Sepulveda-Q, libertarian economist

We only need to remember the case of the securities that El Salvador tried to introduce as early as December 2023.
They were to be issued by the Fund for Road Conservation (FOVIAL). At the end of November it was made public by the company Oppenheimer & Co. that, in collaboration with Banco Atlántida, SA, they have drawn up a very extensive document so that FOVIAL can issue bonds of up to $500 million in Europe, with the aim of ” Pay off existing debt and get money for future investments.”

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The institution was analyzing demand for the bond, which would mature in 7 years and have a yield of around 14.5%. The government did not authorize the operation due to the inconvenience of the circumstances, as reported by current Finance Minister Gerson Posada.

“Investors are saying to the Salvadoran state that ‘FOVIAL’s structure may be attractive, but we don’t trust you.’ Therefore, we demand returns above 14% to lend to you. “They are already garbage returns,” international relations expert Napoleon Campus commented at the time in an interview with El Diario de Hoy.

Why, then, would an investor be interested in purchasing low interest rate products when they are issued by the Salvadoran government itself, which is not trusted internationally?

And it seems that the response to this freezing of Volcano bonds is that there are no interested investors, especially when similar products already exist in more reliable markets such as the United States or the United Kingdom.

In particular, there are exchange-traded funds (or ETFs), which are financial products that are based on the value of another asset. And already exist for Bitcoin. It is actually their authority that has led to an increase in its price. The latter has been the coup de grace for Volcano Bond. For American liberal economist Aaron Sepulveda-Q, Nayib Bukele’s government is looking for different options to finance itself outside the traditional market, which has closed its doors.

“This, finding another way of financing, is what we were trying to do with the Volcano Bond. They are not issued because no one wants them… There is no demand for El Salvador’s debt, which is why the interests are so high,” Sepúlveda-Que commented a few weeks ago.

Barclays still sees potential

“The idea (of a volcano bond) failed when El Salvador’s risk premium soared and the price of bitcoin fell,” British investment bank Barclays said in its latest report on El Salvador. The government is taking money from pension funds to finance itself. “While we are very skeptical, it is worth noting that Bitcoin is currently reaching all-time highs (…) and for a President who has staked his brand and personal identity on Bitcoin, that It is difficult to completely dismiss the perspective” of financial institutions. However, it seems there is not enough interest in the market to raise an issue of this size. Already in mid-2022, Bloomberg indicated that they were not released because not a single buyer was interested in acquiring them.