El Salvador plans to build a "Bitcoin City" and use $500 million of a planned $1 billion bond offering to buy more cryptocurrency.

President Nayib Bukele announced in the beach village of Mizata to a crowd of cheering Bitcoin aficionados that El Salvador plans to issue the world's first sovereign Bitcoin bonds and establish Bitcoin City, which will be free of income, property, and capital gains taxes.

El Salvador aims to sell $1 billion in tokenized US dollar denominated 10-year bonds that will pay 6.5 percent via the Liquid Network, according to Samson Mow, chief strategy officer of Blockstream. Mow, who shared the platform with Bukele, claimed that half of the funds from the so-called "volcano bond" will be converted to Bitcoin and the other half will be utilised for infrastructure and Bitcoin mining fueled by geothermal energy.

The government would begin selling its Bitcoins and paying an additional dividend to investors after a five-year lockup period, according to Mow. On Thursday, he told Bloomberg News about his suggestion.

Because of Bitcoin's expected gain, Blockstream models predict that by the conclusion of the bond's tenth year, the annual percentage yield will be 146 percent, according to Mow, who predicts that Bitcoin will achieve the $1 million mark within five years.

The bonds' five-year lockup period, according to Mow, is designed to remove $500 million in Bitcoin from the market, increasing the tokens' scarcity and worth.

Bitcoin hit an all-time high of over $68,000 in early November, but has since lost roughly 20% of its value. Bukele has "bought the dip" on several occasions when the price of Bitcoin has dropped. The country has at least 1,100 tokens as of the end of October.

El Salvador will become "the financial centre of the globe" and "the Singapore of Latin America" as a result of the plans, according to Mow, who expects other countries to follow suit. "The first countries to do so will gain a significant edge." "This is the start of nation-state Bitcoin FOMO," Mow remarked, using the term "fear of missing out" to describe the situation.

Investors will also be granted permanent residency and a speedy path to citizenship, according to Mow, who stood next to Bukele.

Bitcoin City will be constructed near the Conchagua volcano, which will generate energy for mining, according to Bukele, adding that Bitcoin bond issuance will begin in 2022. The Bitcoin City's only tax will be a 10% value-added tax to fund city construction and services, he explained.

El Salvador became the first country to adopt Bitcoin as legal tender in September, a move that has sparked both enthusiasm and criticism in the months since.

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