I don’t think you would associate bonds with something explosive like volcanoes. But this actually exists.
Nayib Bukele, the President of El Salvador who made Bitcoin legal tender in the country, is pushing the limits once more by launching the volcano bonds.
I didn’t know about it until the good folks at Bondsupermart reached out and we did a podcast discussing it.
It was interesting in the sense that these volcano bonds are linked to Bitcoins – half of the proceeds are intended for Bitcoin investment and the other half are for building a Bitcoin city.
The planned site is at a volcano in El Salvador. The purpose is to tap on the geothermal energy in the vicinity to mine bitcoins. This is one way to make Bitcoin mining more cost efficient and green.
The bonds pay 6.5% interest and mature in 10 years. The kicker is that you get additional gains as El Salvador plans to distribute part of the Bitcoin profits (if any) from the fifth year onwards.
The funny thing is that El Salvador sovereign bonds are over 20% yield now. A sign that she might default.
But I thought that they were probably unable to raise money via conventional ways, which have forced them to resort to something new like this – hoping that this Bitcoin related issue could shift perspective from its un-credit-worthy status and to tap on a new group of investors, the Bitcoin believers.
So are these volcano bonds considered bonds and hence ‘safer’ than investing in crypto directly?
I left a crude answer out of the podcast as it may be inappropriate for the Bondsupermart name.
I wanted to give an analogy – imagine we have a glass of healthy carrot juice and another glass of disgusting urine. Mixing them together would still be disgusting.
That is how I see these volcano bonds. If I want something safer, I would go for investment grade sovereign bonds. If I want to get exposure to Bitcoin, I would buy the coins directly.
Mixing them doesn’t make it safer or more attractive.
