(Corrects the error at paragraph 15 of BlueBay. It is not Blue Bat).

Rodrigo Campos & Sarah Kinosian

SAN SALVADOR, (Reuters) –El Salvador’s President Nayib Bukele took to the stage at the conclusion of Week to cheers from fans thrilled that his Central American nation has adopted crypto currency alongside the U.S. Dollar as its legal tender. Bukele, aged 40, was wearing his iconic backwards baseball hat as he announced plans to create “Bitcoin City” on the Conchagua volcano, overlooking Pacific. The city will be a safe haven and would use bitcoin-backed bonds to fund it. It is also powered by geothermal power. He told the crowd, “Invest here and make all the money that you desire.” Bukele’s plans have been praised by supporters who argued that they will bring financial inclusion, jobs and foreign investment to the West Hemisphere’s most impoverished countries. The giant screen read “Feel the Bit”, before Bukele (who is referred to as “CEO El Salvador” via Twitter (NYSE:),) appeared on the stage. Some in El Salvador, and elsewhere expressed their outrage at this glitzy celebration in a country beset by violence, inequality and poor public service. Marce @_lamismadeayer tweeted, “This video makes my sick, angry, and sad all at once.” Blockstream is a digital asset infrastructure company. The government claims that the government will issue $1 billion of Volcano Bonds in partnership with Blockstream. This would help to provide funds for development. Fitch credit rating agency estimates that El Salvador will have a budget shortfall of $500million next year. The bitcoin bond cannot cover this gap.

The bond money will be used for infrastructure projects, such as building Bitcoin City. Half the remaining amount would be used for bitcoin purchases and the rest would remain locked up for five year. The bitcoin will then be able to be sold. This capital return would be divided 50/50 between investors and the government, after which the original $500 million in funding is recouped. A 10-year Bitcoin bond will offer a 6.5% coupon and be payable annually. However, a Salvadoran bond maturing in 2032 yields close to 13.9%. Markets have been cautious. Since April ended, the spread in favor of Salvadoran yields over safe-haven U.S. Treasuries is increasing rapidly. It has risen to 1,200bps this week, an additional 79 basis point. In May, El Salvador’s bonds were sold by investors after five Supreme Court judges and the attorney general of the Bukele government fired them. They were replaced by loyalists. According to data from Refinitiv, the 2025 bond yields over 18%. The country cannot borrow on the stock market because of the high price. Graham (NYSE 🙂 Stock, BlueBay Asset Management’s senior sovereign analyst, stated that bitcoin funding could deter El Salvador from adopting sustainable spending plans. Additionally, the International Monetary Fund would continue to support El Salvador. To put it mildly, “Building an economy around crypto mining is an untested strategy.” He added that Bukele didn’t appear to plan to increase tax revenues and growth. IMF TALKS SILENT Talks to the IMF about a $1 Billion loan are stalled due to concerns over transparency, price volatility and democratic backsliding. Many in the crypto community remain optimistic, stating that the bond will generate strong retail demand. “Bitcoin bonds are a game-changer in fixed income markets,” said Moritz Wietersheim, founder of Specter Solutions, a bitcoin security and product company. Although bitcoin is down about 16% since its June record high at $68,990.90, it still stands above 90% for the year. International crypto evangelists stressed-tested the bitcoin experiment for the first time at “Bitcoin Week”. The vendors selling “Jesus Loves Bitcoin” shirts hosted panel discussions that included crypto currency officials and Salvadoran ministers. Excitement was widespread at having a ‘petri dish’, as many attendees called El Salvador’s experiment. Many people expressed concerns over the Chivo wallet that Salvadorans could use to send and get bitcoin. It is a government tool, intended as an alternative financial system. Chivo is preloaded with $30 and supported by a $150million fund. Users can make free transactions to Chivo users, however, registration will require Salvadorans to provide their personal data and ID numbers. Transactions are stored on a ledger. Some users described Chivo to be a portal to other independent Bitcoin wallets like Muun and BlueWallet that provide privacy. “When I make a payment, in the notes section, I write ‘use Muun, don’t use Chivo,’” said Wietersheim, using the hashtag #FixChivo on Twitter. Chivo was criticized by thousands of people for fraud cases and the disappearance of cash from their wallets since its launch. These technical issues were listed by several programmers as normal due to the fast implementation, which took place less than four months from when Bukele first announced it. Bukele blames the high demand. Chivo’s spokesperson and the office of President Chivo couldn’t be reached for comment.