I’m starting to like the president of El Salvador, Nayib Bukele. He thinks big, like a Bond villain.
During a recent closing speech for a weeklong Bitcoin event, President Bukele, sitting back in a rattan recliner and petting a white cat, proclaimed that he would build the world’s first “Bitcoin City,” which would be funded by Bitcoin bonds and would use the power of a volcano to mine more Bitcoin.
You may remember Bukele from when he used El Salvador treasury funds to buy Bitcoin for the government about a year ago. He first bought 400 bitcoins for around $50,000 per token. After some volatility, it is now trading at $57,704. That’s not a home run, but it’s a better return than the United States will get out of the infrastructure bill.
According to Business Insider:
“Invest here and make all the money you want,” Bukele said in English, dressed all in white and wearing a reversed baseball cap, in the beach resort of Mizata. “This is a fully ecological city that works and is energized by a volcano.”
Half of the VAT levied would be used to fund the bonds issued to build the city, and the other half would pay for services such as garbage collection, Bukele said, estimating the public infrastructure would cost around 300,000 bitcoins.
Eco Dead End Friend
As I’ve been saying for years, Bitcoin mining is an energy-sucking process and an ecological disaster. Global Bitcoin mining uses more energy than many individual countries in the world.
But heck, if you have a volcano with geothermal power, it could make electricity cheap enough to make Bitcoin mining worthwhile — barring eruptions and other force majeure. Energy is the highest cost in mining, so miners move to areas with low-cost energy. The current breakeven in mining is around $30,000 per coin.
But the exploding jungle volcano isn’t even the core nugget of this crazy plan.
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The new Bitcoin “volcano bonds” will be worth $1 billion and carry a 6.5% coupon. Half the money would go to buying Bitcoin. More bonds would follow and after five years, El Salvador would start selling some of the Bitcoin and pay an “additional coupon” from the massive profits derived from Bitcoin continuing its meteoric rise.
Someone should remind Bukele that the price of Bitcoin can go down as well as up…
That said, these bonds might be a self-fulfilling prophecy. If 10 of these bonds are issued, $5 billion in Bitcoin would be off the market for five years. If other countries issue Bitcoin volcano bonds, it would remove some percentage of Bitcoin from trading and create a tighter market. In theory, this could push the price of Bitcoin higher.
Miners Running Out
The second part of the plan has a flaw because 89% of all Bitcoin has already been mined.
As of yesterday, 18,880,437.5 bitcoins have been mined. After the next 2,119,562.5 bitcoins are mined, there will be no more produced. The current rate of production is 900 bitcoins a day, which puts the end of mining at March 16, 2024. That’s a little over two years away.
All of this is fun and interesting, but aside from its first-mover advantage, Bitcoin isn’t very useful. Cryptocurrencies have advanced a long way over the last decade, and much like we learned from Myspace, Napster, and Mosaic, being a first mover doesn’t mean you’ll be the long-term winner. In fact, it can mean quite the opposite.
I’ve discovered six cryptocurrencies that are better than Bitcoin. They each fill a unique niche, are backed by major forces, and are trending higher.
All the best,
Christian DeHaemer Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
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