El Salvador Plans to Build Bitcoin City

El Salvador, the first country to make bitcoin legal tender, has announced that it has plans to build a Bitcoin City which would be pretty much tax-free for investors and would also serve to attract many investments and businesses.

Apart from a value-added tax of 10%, the new city would not have any sort of capital gains or any other tax. This is expected to attract a lot of small and large investors and it may also lead to a lot of companies setting up shop here as the regulations are very free and limited and now, with the taxes also being reduced to a minimum, this makes the place, even more, sweeter for investors. This is one more step by the government to increase their indulgence of Bitcoin but it remains to be seen whether this gambit by the government would serve it well in the long run. The assumption is that the prices would continue to go up in the years to come but considering the prices are highly volatile as far as the market is concerned, it could well backfire as well.

The country also plans to issue a 10-year sovereign bitcoin bond for 6.5% which would be worth $1 billion. Half of this would be converted into bitcoins while the other half would be used to build infrastructure and bitcoin mining using geothermal energy so that the mining does not affect the environment too much. There would be a 5-year lock in the period after which the bitcoin would be expected to sell back into the market and any dividends from the sale, assuming that the prices have gone up by then, would be paid back to the investors. This is the plan for the sovereign bond and it has to be remembered that once this bond is launched, it would remove $500 million worth of bitcoin from the market which could push up the prices in the short term.

The country expects to become the financial capital of the world and it is probably only a matter of time before it goes all-in on crypto in general and starts investing in other cryptos as well, in the months to come. It would be well served to go slow on its investments, though, to ensure that it doesn’t get affected too much by the price volatility.