El Salvador President Nayib Bukele took to Twitter on Sunday to tease a scale model of the unbuilt “Bitcoin City” that sits at the heart of his crypto-fied vision for the country.
It’s quite possibly one of the worst moments to unveil a new speculative project: This week, crypto markets are in the midst of an ongoing widespread sell-off that has seen Bitcoin shed half its value and eventually triggered one of the most popular algorithmic stablecoins, UST, losing its 1:1 U.S. Dollar peg (UST went as low as $0.68 and crawled back to $0.90 on Tuesday).
Bukele—who led the push for El Salvador to become the first country in the world to adopt Bitcoin as legal tender last year—posted pictures of a golden scale model and artist rendition of a city built in the shadow of a volcano to Twitter. The city model has a giant Bitcoin symbol at the center, landmarks, and a deeply repugnant airport design. Bukele insists the actual city will mostly be green.
The project’s fanciful science fiction (emphasis on the fiction) flavor brings to mind other moonshot projects by crypto and fiat enthusiasts alike. There’s Neom, the Kingdom of Saudi Arabia’s proposed desert city that was supposed to have flying cars, robotic dinosaurs, and an artificial moon. There’s The Line, the Kingdom’s rebranded version of a linear city. A little further down the ambition scale, there’s the planned crypto island utopias of Cryptoland and Satoshi Land, the Danube River’s tax haven in Liberland, the list goes on.
Bitcoin City’s pitch is familiar: Bukele envisions a tax haven powered by geothermal energy from a volcano that will also be used to mine Bitcoin.
In his tweet thread, El Salvador’s president said development is “going beautifully,” but it doesn’t appear to have even broken ground yet. One of the major funding mechanisms for this project was going to be $1 billion worth of "volcano bonds,” 10-year sovereign bonds with an annual 6.5 percent coupon. Their issuance, however, has not only been delayed but also dialed back from being government bonds to bonds issued by LaGeo, the country's geothermal power company.
Previously, the country’s finance minister, Alejandro Zelaya, claimed that there was “substantial oversubscription" for the bond. A Financial Times report on the volcano bond’s delay casts doubt on any benefits El Salvador claims to have gained by adopting Bitcoin as legal tender. The government is struggling to repay and refinance its debt, investors have downgraded its sovereign bonds to junk status, just 2 percent of remittances sent by the country's large migrant force were with digital wallets, and 70 percent of the country has "little or no trust in Bitcoin," according to a Central American University poll.
Crypto critic David Gerad has argued that while LaGeo can't possibly pay back the bonds, this arrangement would allow El Salvador to default on government debt without hurting the bitcoin bond or, if LaGeo goes under, then it may not leave a negative mark on the country’s recently-downgraded credit rating. Because the bonds will be governed by El Salvadoran law and the country’s Supreme Court was just packed by Bukele, the Wall Street Journal wished investors “good luck collecting if the Bitcoin bond goes bust.”
Despite all this, Bukele insists Bitcoin and Bitcoin City are the future of El Salvador. Amid this week’s crypto market meltdown, the president proudly tweeted that he was “buying the dip” to accumulate Bitcoin at a discount.
At this point it’s not clear how Bitcoin City will be built, or whether those bonds will be issued, let alone bought. It is clear, however, that El Salvador is struggling to pay down its debt, and for some reason Bukele believes that adopting a cryptocurrency that the country doesn’t use, investors don’t trust, and governments are up in arms about, will yield a different outcome than all the other tech utopian city-building failures.