Two weeks ago the infamous “Volcano Bitcoin Bond” finally made its way to the El Salvador legislature for final approval — a legislature completely controlled by Nayib Bukele’s New Ideas Party.
While final rubber-stamping occurs through an economic commission, also made up almost exclusively of New Ideas party members, it’s worth talking about more than just why the Volcano Bitcoin Bond has been widely mocked by financial experts. Specifically, why two companies deeply intertwined in the crypto industry — Bitfinex and Blockstream — are supporting a fascist.
The Bitcoin Volcano Bond
At face value, while naive and not properly incentivized for anyone who understands bonds, the concept of the bond and de-dollarization for El Salvador isn’t necessarily a bad one. After numerous horrendous, violent, and often US-incited civil wars, El Salvador found itself with a currency pegged to the US dollar, and in 2001 finally decided to simply dollarize.
Dollarization, while great for having a stable currency (USD), isn’t in a non-US territory’s best interests because these countries don’t have access to the US Treasury or Federal Reserve banks. In other words, they can’t request more dollars when they run out.
This is a particular problem for a country like El Salvador, which depends heavily on remittances so citizens can earn enough to survive and has always had more imports than exports.
So, in a sense, the Bitcoin Volcano Bond (and making bitcoin legal tender) has been viewed as the first step toward “de-dollarization” — an attempt to wean El Salvador off the US dollar, establish its own currency (perhaps backed by an asset like bitcoin), and reverse the economic conditions that have been prevalent for decades.
Why the bond doesn’t work
There are much better explanations for why the Bitcoin Volcano Bond is silly, the best I’ve read being Matt Levine’s over at Bloomberg: “Is this a good investment? I don’t know; it depends on whether (1) El Salvador pays you back and (2) bitcoin goes up over the next 10 years. Helpfully there are other investments that depend on the same factors. For instance, you can just buy Bitcoin. Or El Salvador has other international bonds; you can buy them.”
Basically, the main issue with the bond is that its main benefit — that it exposes purchasers to bitcoin — can be wholly substituted by simply purchasing bitcoin. Meanwhile, the alternative bonds that Levine mentioned have been struggling, selling at discounts and getting offered to Chinese investors and the Chinese government as a nice purchase.
On every other scale besides simply economic, Nayib Bukele has, while embracing the title dictator supposedly ironically, pretty much actually gone full fascist.
Indeed, he altered the constitution so he could run for president again, moved the army into the legislature to have bills that he’d proposed passed, and uses the military to target anyone he decides is an enemy of the state.
“It brings back memories of the [violence of] the 70s and 80s,” said Oscar Salguero, a Salvadoran-American software engineer who has decades of experience in finance. “History is repeating again and it’s really sad.” In the past, said Salguero, Salvadorans, “had some human rights, had Miranda rights… but now, with the Bukele regime, all of that went away.“
There is nothing cute or funny about Nayib Bukele being an authoritarian, fascist dictator. Really, it’s bad for almost everyone, especially the people of El Salvador.
So what’s in it for Bitfinex and Blockstream?
Recently, as troops have surrounded the suburb of Soyapango and indiscriminately murdered and arrested many individuals, Bitfinex and Blockstream executives have been taking cute pictures with the dictator-in-chief.
Seen front and center with Bukele are Bitfinex and Tether CFO Giancarlo Devasini and Bitfinex and Tether CTO Paolo Ardoino. Also featured on the far left is dictator enjoyer Max Keiser.
Which leaves many people — including those who are crypto industry proponents — scratching their heads and wondering “Why? Why are Bitfinex and Blockstream becoming bosom buddies with a fascist government?”
The answer might be simpler than it seems.
99 problems but citizenship ain’t one
One of the alterations to the Bitcoin Volcano Bond that hasn’t been called out as a glaring red flag is, through buying enough of the bonds, an individual can acquire El Salvadoran citizenship.
While El Salvador maintains extradition treaties with countries like the US currently, its move toward allying with China and its rift with the International Monetary Fund (IMF) makes it easy to wonder how tightly extradition policies will be enforced with Bukele at the helm in the future.
“Bukele needs strong allies internationally,” said Salguero, “strongmen have always sought allies in the private sector.”
And it appears that, in exchange for a promise of citizenship and an always welcoming country, the Bitfinex, Blockstream, and Tether teams are happy to oblige the technofascist dream.
“What you see now is the same as in previous regimes,” said Mario Gómez, a Salvadoran software engineer who was forced to flee El Salvador after being arrested for criticizing the bitcoin legal tender law. “It’s called ‘Mano Dura,’ essentially the ‘hard hand on crime.’”
Gómez continued, “It’s kind of natural that Bukele is finding allies on this spectrum of political ideologies. It’s not that surprising to me… that it involves Bitfinex, Tether, and Blockstream.”
Blockstream doesn’t want to be mentioned
Blockstream marketing and communications director Fernando Nikolić reached out to me to ask me to “remove Blockstream from this piece entirely.”
I let him know there is zero chance that will happen.
The bonds that are supporting Nayib Bukele will be hosted on the Liquid Network, a Blockstream platform. Besides this, Samson Mow, who was CSO at Blockstream regularly made appearances in El Salvador, with Nayib.
The levels of separation are minimal and CEO Adam Back along with former CSO Samson Mow admit to how much they’ve helped move the bond forward and have supported Nayib.
Sad state of affairs
The Bitcoin Volcano Bond, which still hasn’t begun trading or been fully approved, is likely to save a regime that’s quickly running short on cash. “Bukele needs it for his image and for the possible liquidity he can get to help the government function,” said Salguero, “and, obviously, for the electoral campaign in 2024.”
“All of these corrupt cryptocurrency companies are eager to go to El Salvador,” he added.
And there’s little room to deny Salguero’s claims. Bukele, who has lost heaps of money on his bitcoin purchases (there’s actually no verification that he bought any at all), parted ways with many NGOs, simply ignores the constitution, and used military force to maintain control of the population, has done everything in his power to openly express that he is a dictator.
Salguero ended the interview tonally defeated. “As a tech guy with knowledge of finance,” he said, “I feel powerless.”
Update 15:03 UTC, Dec 9: Added section “Blockstream doesn’t want to be mentioned” to provide further context.