El Salvador approved on Wednesday a law that will regulate the issuance of other digital than just Bitcoin by the state and private entities. One of those assets could be a token that would act as a Bitcoin bond. While their success is far from certain, it's remarkable how steadfast Bukele, El Salvador's president, remains in his commitment to Bitcoin. 

The Bitcoin bonds, affectionately known as 'volcano bonds', are supposed to be a new way for El Salvador to raise a billion dollars from the international capital markets. Traditionally, it's a country that has relied on the IMF for loans. These types of loan constructions have recently received a lot of criticism, for example in Alex Gladstein's article How the IMF and World Bank repress countries and funnel their resources to rich ones.

A potentially successful (series of) Bitcoin bond(s) to raise capital would be a possibility for this country to unshackle itself from the IMF debt sharks. Unsurprisingly, last year, the IMF let it be known that it disapproves of the Bitcoin bonds idea. El Salvador hopes to finance Bitcoin mining base on geothermal energy (hence the 'volcano') and even a new city with the potential new capital - obviously this would require more than one tranche of bonds.

Will they pull it off?

It remains very much to be seen, of course, if the volcano bonds will find enough investors. It was rumored that last year's postponement of the Bitcoin bond issuance had to do with a lack of interest from investors. The El Salvadorian government at the time claimed it was the law that needed to be drafted and approved first. This has happened now. 

But global liquidity is still low and the crypto bear market still in full force. It remains to be seen how many investors will risk the experiment. The bonds would pay out 6.5% a year, which isn't high for such an experimental product issued by a country with a poor credit rating. As a kicker though, starting from the sixth year, investors will receive dividends generated by Bitcoin being sold. The height of the dividend will of course depend on Bitcoin's price at the time. 

So, as investing in the bond would be a bet on the rising price of Bitcoin, it begs the question why not directly invest in Bitcoin? Without being exposed to the counterparty risk of El Salvador managing everything correctly?

Mixed signals

While El Salvador hasn't been able to benefit from Bitcoin's price rise - the roughly 2400 Bitcoin they possess have lost tens of millions in value measured in dollars - the country has benefited in other ways. The principled and daring stance on Bitcoin has attracted a lot of Bitcoin minded tourists, for example.