The Investors Podcast: A Sovereign Bitcoin Bond in El Salvador w/ Adam Back & Samson Mow

Check out the episode page here

Key Takeaways

  • Bitcoin has the potential to disrupt the entire bond market. 
  • El Salvador will receive 100% of the funding because they do not need to go through the IMF or a bank, or any other intermediaries like a normal bond issuance. 
  • At a “conservative” 35% estimated appreciation rate of Bitcoin per year,  the price of Bitcoin after 10 years will be $1.2 million per coin. 
  • “There’s a whole world that is opened up to people that hold bonds now, just because it has these new unique properties as a crypto token”.
  • El Salvador has the potential to become the “Singapore of Central America” 

Intro

  • Dr. Adam Back and Samson Mow talk with Preston Pysh about their assistance with El Salvador to issue a billion-dollar bond that’s backed by Bitcoin and Bitcoin mining.
  • Dr. Adam Back @Adam3us is the inventor of the hashcash and Co-founder/CEO of Blockstream, a cypherpunk, and a cryptographer.
  • Samson Mow @Excellion is CSO @Blockstream, CEO @Pixelmatic, creator of @InfiniteFleet, entrepreneur, executive producer, & game developer. 

Volcano Bond Structure

  • The 1 billion dollar bond will be used to purchase $500 million of Bitcoin and $500 million towards infrastructure. Infrastructure to harness volcanic energy to mine bitcoin. 
  • The bond has a 6.5% coupon and will mature in 10 years. 
  • After a 5 year lock-up of the Bitcoin, they will start paying investors a Bitcoin dividend after recouping their initial $500 million Bitcoin buy. 
  • In each of the 20 quarters (5 years) remaining, they are going to sell 1/20th of the bitcoin. Half of the proceeds will be shared via dividends that will be paid annually. 5 in total.  
  • Bitcoin Dividends are dispersed using Blockstream’s Asset Management Platform (AMP). It is a bond, but it’s also a crypto token on the liquid network,  so there will be over-the-counter trading on exchanges 24/7.
  • According to the 35% model, investors are forecasted to receive a 90% Bitcoin dividend along with the 6.5% coupon. 
  • The bond will be listed through Bitfinex and Blockstream is just a technology provider and advisor.

Who Might Buy this Bond?

  • Bitcoin whales looking to diversify
  • Institutions otherwise unable to buy Bitcoin directly looking for exposure to bitcoin’s upside potential. 
  • Bitcoiners/people looking to support El Salvador 
  • The traditional bond market is a $100 trillion dollar industry. Capturing just 1% of this would be an impactful market move. 

Potential for El Salvador

  • El Salvador is working on new security regulations. Approval of a business-friendly regulatory framework may attract business. 
  • Other countries will be monitoring this bond. If successful, many other countries may offer similar products and El Salvador will have first-mover advantage. 
  • El Salvador recently announced Bitcoin City. A city that will run completely on volcanic energy and offer its citizens no taxes except for VAT.
  • More bonds are expected to be issued to fund this approximated $17 billion Bitcoin City project. 
  • If it turns out that Bitcoin is the new digital gold, in the same way, that previous centuries saw oil as black gold, then El Salvador could quickly become massively wealthy, like the oil-rich Middle Eastern countries.
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Notes By Paul Keating

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