Yes, El Salvador Volcano Bond sounds super exciting, but it is unfeasible

Yes, El Salvador Volcano Bond sounds super exciting, but it is unfeasible.

First, I asked ChatGPT about the bond.

A bond is a debt security that pays periodic interest to bondholders and repays the principal when the bond matures. Bonds are issued by companies, municipalities, and governments to raise capital. When an investor buys a bond, they are essentially lending money to the issuer in exchange for regular interest payments and the return of principal at maturity. The issuer of the bond is obligated to pay interest and principal to bondholders on specified dates. The value of a bond can fluctuate depending on interest rates, market conditions, and the creditworthiness of the issuer.

You can see that a bond is issued from the country, which acts as a financial security to borrow money from the investors and issuer in exchange for regular interest payments.

Therefore, you are betting Bitcoin continues going up and able to pay off interest payments to whoever purchases the bond.

The problem is Bitcoin will not go up forever.

Second, the market condition has changed since. Global inflation will be higher for several years. It makes borrowing money harder and more costly compared to previous years.

It means the investment activities will become slower, and asset value will be moderate or lower depending on each country. We see how Bitcoin reacts when the interest rate increases and with higher inflation. It is not pretty. 

Third, Bitcoin is capping with its limited quantity. It does not inflate like fiat currency which is another problem in becoming a security. As a result, its price will fluctuate more comprehensively, and investors will likely lose their money when the price drops significantly.

Finally, El Salvador is not credible as an issuer in the past history. As a result, the country is highly likely to default.

But it is exciting to see how the crypto bond will play out; we are still determining if that will work in the future.

Photo by Marjan Blan | @marjanblanUnsplash

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