the government of el salvador is already defaulting. local law calls for a redistribution of the national GDP to the 262 municipal governments throughout the country to finance local development projects. the central government stopped disbursing those funds two years ago. the other anticipated financial crunch is the imminent pension fund system reform. the government is telling the people there will be an increase in retirement payouts but the data shows there just isn't enough funds to even sustain the system much longer. the strategy is aimed at holding down public finances in check until reelection is achieved, so their efforts are only considered in the short to mid terms. in the long term, however, there is extreme uncertainty. and this is where we can make a connection to the volcano bond fiasco and the bitcoin failed experiment. there just isn't enough credibility, real economic output and financial muscle to make any realistic attempt to promote such ridiculous ideas, never mind the crisis crypto is facing on its own in the first place.

Expand full comment

Great article! Just not sure I get "The volcano bond bundled a 10-year local El Salvador law sovereign bond and a call option on bitcoin from the ‘bitcoin dividend’. "

Expand full comment

Hey! Understanding that sentence requires remembering the nittry gritty details of the volcano bond, which in hindsight, was a bad thing to assume -- most people will not remember the details LOL.

But basically, according to the initial presentation in November 2021, the volcano bond was going to be a 10-year bond governed by local law. And it was going to have a special payment (the 'bitcoin dividend') if the price of BTC rose from the initial level when the bond was issued. The idea was to 'share' some of the profit from bitcoin appreciation of the initial $500M purchase with volcano bond holders (assuming there was any). Since the payments from this 'dividend' can only be positive and only occur if the price of BTC rises aboke a baseline level, the 'dividend' is effectively a call option on BTC (much like call options on stocks).

So overall, the volcano bond is a 10-year local law bond with a call option on BTC attached :)

Expand full comment