The CEO of MicroStrategy considers there is a better way for the Central American country to obtain funds. The executive stated that people are not as optimistic about the volcano bonds as the Salvadoran government expects.
Michael Saylor, the founder of MicroStrategy, considers that the market is not ready for Bitcoin-based bonds. For that reason, the executive sent a message to Salvadoran president Nayib Bukele.
In November, Bukele announced the issuance of more than USD 1,000 million worth of Bitcoin-based bonds.
Bukele plans to raise funds with state Bitcoin-based bonds to solve the financial situation of El Salvador. He wants to increase the Bitcoin holdings of the nation, which are already on the order of 1,800 BTC.
His government will also use the money raised to finance the construction of the Bitcoin City. They will power it with the geothermal electrical energy generated by the Tecapa and Conchagua volcanoes.
However, Saylor thinks it is not a good idea to issue 10-year Bitcoin-based bonds at an interest rate of 6.5% per year. He said those assets are a hybrid sovereign debt instrument rather than a Bitcoin treasury game. He highlighted that this has credit risk and has nothing to do with the risk of BTC itself.
The billionaire believes El Salvador should request a term loan from a leading bank. He pointed out that retail investors are skeptical about buying Bitcoin-based government bonds.
Saylor may be suggesting that Bukele withdraw his volcano bond offer to copy the strategy of MicroStrategy. The software company recently reported using its Bitcoin fund as collateral to obtain a 3-year loan worth USD 205 million through Silvergate Bank.
MicroStrategy has 125,051 BTC worth almost USD 6,000 million in its treasury. They are showing a new way to obtain loans without giving up the bitcoins in their balance.
What Is Wrong about the Salvadoran Bitcoin-Based Funds?
Saylor recently stated that the world is less optimistic about the volcano bonds, consistent with his comments on the Salvadoran Bitcoin bonds. Then he noted contradictions between Alejandro Zelaya, the Salvadoran finance minister, and Paolo Ardoino, the CTO of the exchange that will launch the volcano bonds.
In early March, Zelaya told institutional investors that the Bitcoin bonds attracted USD 1.5 billion in demand at a meeting in Paris. Nevertheless, Bitfinex CTO Paolo Ardoino said there was about USD 500 million worth of interest from users around the state bonds of El Salvador.
Although the figure mentioned by Ardoino represents around a third of the estimate by Zelaya, it only refers to clients of the exchange.
The launch of the Salvadoran Bitcoin-based bonds should have been during the third week of March. However, the government has not yet launched the investment instrument, suggesting the prevalence of caution.
Zelaya said they are waiting for better market conditions and might launch the Bitcoin bonds in September. Several signs indicate El Salvador is striving to rid itself of the US dollar and the financial system that keeps it indebted. As it is the first country to adopt the pioneering cryptocurrency as legal tender, it bets on Bitcoin.
By Alexander Salazar
