The IMF warns El Salvador against the use of Bitcoin and cites threats to financial stability. While the Blockstream CSO talks about the plans of the Bitcoin City.
The International Monetary Fund (IMF) again warned El Salvador against Bitcoin as legal tender, stating that the measure might carry risks for the financial system. In June, the IMF had warned of their concerns. And it was not the only international entity that showed concern about the situation, so did the World Bank.
In a statement, the IMF acknowledged that Bitcoin and cryptocurrencies, in general, can facilitate efficient payments, but declaring them legal tender would potentially erode financial stability.
According to the IMF, given the high volatility of Bitcoin prices, its use as a legal tender could carry vital risks to consumer protection, financial integrity, and financial stability. Its use also allows contingent fiscal liabilities.
In addition, the agency asked El Salvador to reduce the scope of the Bitcoin Law, in force since September, and strengthen the regulation and supervision of the new payments ecosystem.
How to Feed the Bitcoin City
The IMF warning arrived just days after El Salvador President Nayib Bukele revealed that the country plans to create the first Bitcoin City in the world, backed with Bitcoin bonds.
Bukele announced plans to manage a $ 1 billion “Bitcoin Bond” with a 10-year maturity on Liquid Network. The bond, developed by Blockstream and processed by Bitfinex, will offer a coupon of 6.5% or the annual interest payment rate. Additionally, investors will receive dividends generated from the liquidation of Bitcoin holdings.
Blockstream CSO Samson Mow explained his thoughts about the bullish narrative led by him on El Salvador and its bid to power a Bitcoin city with the energy of a volcano in a Bloomberg TV interview.
When asked why any institutional bond investor would buy this BTC bond, Mow opined that the annualized return to investors could be as high as 146% in year 10, based on Blockstream projections.
The president also added that he thinks there is more than a billion money to connect to this bond with at least 6.5% in line with most bonds worldwide. Also, there is that special Bitcoin dividend for them to run the calculations that at the end of 10 years, Bitcoin is a million dollars.
More Projections
Additionally, Mow cited two projections, first, that Bitcoin appreciates 35% year-over-year. Second, the yield that year would be at least 90% plus the 6.5% coupon. However, if it goes up, there is another conservative model with an API of 140%, plus the coupon of 6.5%.
According to Mow’s speech, the project would attract potential investors who want to dig deeper. Furthermore, when asked why these investors would not buy Bitcoin outright instead of having a 50% stake, the CSO responded: They could purchase Bitcoin outright, but generally, the mandates do not allow them to have cryptocurrencies.
By: Jenson Nuñez
