Every cloud has a silver lining. That seems to be the motto that these days moves the president of El Salvador, Nayib Bukele, who wants to take advantage of the collapse in the price of bitcoin due to the protests in Kazakhstan, a distant country in Central Asia that since 2021 is the second largest emission center [’minado’, en la jerga del negocio] of cryptocurrencies in the world. The government of the authoritarian Kassym-Jomart Tokayev ordered last week the complete shutdown of the Internet to prevent protesters from transmitting the violent repression unleashed from the State, but his decision ended up becoming a hard setback for the opaque business of virtual currencies: the blackout hit crypto markets hard, mainly the value of bitcoin. Thousands of kilometers across the Pacific, a small country called the attention of investors in the sector, who believe that the stability guaranteed by Bukele —and the pharaonic dreams of the young president— could be fertile ground to create a large mining center.
The popular president had already announced in November his grand plans to turn his country into a global laboratory for cryptocurrency. In a huge staging later that month he announced the creation of a Bitcoin City, at a cost of billions of dollars. In front of hundreds of followers, with a scenario very similar to those set up by the big technology companies when they announce their new releases, Bukele was enthusiastic about the project and promised that it will bring economic development to his country. From your Government, it has been stated that this initiative aims to turn El Salvador into the Singapore of Latin America. And the only thing missing was the misfortune of others for the dream to begin to get on track.
This story begins in Almaty, the most important city in Kazakhstan. In the great industrial and commercial center of the country, violent riots broke out in early January due to the increase in the price of liquefied gas and energy at a time when the Central Asian country is suffering from very low winter temperatures. Citizen discontent increased fueled by the corruption of the economic and political elites and the great social inequalities. Cornered by the demonstrations, Tokayev asked Russia for help, which sent soldiers to the country, and launched a brutal repression that has left at least 164 dead, 1,000 injured and almost 10,000 detained. But what do the Almaty protests have to do with bitcoin? The answer lies in the energy use required by the so-called mining farms. These are huge and powerful computers that work non-stop, which demands a lot of energy. The low prices of this resource attracted investors and the Kazakh government received them enthusiastically, but as energy demand skyrocketed, the population began to experience blackouts, several plants suffered overloads and the price of energy skyrocketed. Then came the Internet outage and the collapse in the value of the currency, which last week fell almost 8%, going from $42,951 to $37,000.
The downturn unnerved investors, who believed Kazakhstan was their promised land as a country stabilized by authoritarianism, with vast energy resources, obscene corruption and little regulation for this type of business. And this is where this story jumps into the tropics. At the beginning of last June, the Salvadoran Legislative Assembly adopted a law that makes bitcoin a legal currency. A fact that President Bukele enthusiastically celebrated. “In every restaurant, hotel, bank, personal transaction, if you want to sell a car, everything can be paid for with bitcoins or dollars. Bitcoin will be treated as the national currency, everyone will have to accept it,” he predicted. Then, his plans began to grow and Bukele launched his idea of turning the Central American country into a large virtual currency mining center. To do this, he promised to offer “very cheap energy, 100% clean, 100% renewable, with zero emissions, from our volcanoes.” On June 10, Bukele made public on Twitter a geothermal project which will serve as the headquarters of the mine.
On January 5, the digital newspaper El Faro published an interview with one of the first businessmen interested in giving wings to the dreams of the Salvadoran president. This is Paolo Ardoino, from Bitfinex Securities, a cryptocurrency company that works in Kazakhstan and that has allied with the Bukele Executive to issue 1,000 million dollars in bonds. Half of that money will be used to build the so-called Bitcoin City and the rest for the purchase of bitcoins. This is how the Salvadoran newspaper explains it: “Bitcoin bonds are a debt that the Government is going to subscribe to for 10 years, with an interest rate of 6.5%. In total, over 10 years, the Government must pay $1.65 billion to cryptocurrency investors for this $1 billion loan. To make this idea a reality, the Government sought allies that would allow it to sell these bonds —known as tokenized securities— to cryptocurrency investors, and Ardoino’s company was chosen.” The businessman then said that his was the only cryptocurrency platform in the world licensed to trade and issue tokenized securities.
President Bukele does not hide his enormous enthusiasm and every day on Twitter he posts comments about his project. He even argues with his detractors, as happened on January 7, when the economist Steve Hanke, from Johns Hopkins University, questioned the plans to create enough energy to guarantee a cryptocurrency mining area in El Salvador. “How much energy can be extracted from the dormant Conchagua volcano? Where is the feasibility study? El Salvador already has a huge energy deficit and imports 22% of its electricity use. Without a feasibility study, no one knows how Bitcoin City will affect this shortfall,” Hanke argued. Bukele snapped at him, with emoticons and in a mocking tone: “This guy! Of course it’s a dormant volcano, idiot! Most geothermal energy is extracted from wells near INACTIVE VOLCANOES! Why would you build a city under an ACTIVE VOLCANO? And, as expected, the reaction generated tens of thousands of retweets that, surely, fuel the president’s dreams of turning his country into the Latin American Singapore.
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