Bitcoin falls as El Salvador plans to build 'Bitcoin City'

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Bitcoin falls as El Salvador plans to build 'bitcoin city'
President of El Salvador, Nayib Bukele, revealed plans to build a 'bitcoin city' at the Latin Bitcoin conference at Mizata Beach, El Salvador on 20 November. Photo: Marvin Recinos/AFP via Getty

Bitcoin (BTC-USD) was down by more than 2.5% on Monday morning, trading at $57,622 (£42,840).

The fall comes as the president of El Salvador announced plans to build a 'bitcoin city' in the country at a promotional Bitcoin event in the coastal town of Mizata late on Saturday.

President Nayib Bukele said the city will be circular to mimic the shape of a large coin, and will be built at the base of Conchagua volcano in order to harness its geothermal energy to power bitcoin mining as well as supply energy to the city. 

The construction and infrastructure of the city will be financed partly by an issue of $1bn in sovereign bonds backed by the cryptocurrency, Bukele said. The city will have no property, income or capital gains taxes, with costs covered by a sales tax and money raised by the bond issues.

Bukele estimated that the construction of the public infrastructure would cost around 300,000 bitcoins.

The bonds will be issued in 2022 and the construction of the city will begin 60 days later, according to the government.

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Samson Mow, chief strategy officer of blockchain technology company Blockstream joined Bukele onstage at the promotional Bitcoin event.

He said the bonds will be US dollar-denominated 10-year bonds, with half the funds converted to bitcoin and the other half used for infrastructure and bitcoin mining.

In September, El Salvador became the first country in the world to introduce bitcoin as legal tender, alongside the US dollar.

The government launched a digital wallet known as the Chivo wallet and offered $30 worth of bitcoin to people who downloaded it.

More than 200 new cash machines were also installed across the country and businesses were compelled to accept the cryptocurrency as payment, wherever possible.

Bitcoin's price on Monday. Chart: Yahoo Finance UK
Bitcoin's price on Monday. Chart: Yahoo Finance UK

The move was presented as a way to boost economic development and jobs, but sparked protests across the country where 32.7% of the population remain below the poverty line and only 58% have access to the internet, which is necessary for bitcoin transactions.

After some initial teething problems when the bitcoin price dropped and the Chivo wallet crashed, Bukele had said that millions of Salvadoreans were using the app.

Between September and October, Salvadoreans living abroad sent around $32m in remittances back home using the Chivo wallet, according to the country’s Central Reserve Bank chief. That represents about 2.5% of all the remittances sent in those months.

In the US on Monday, asset manager Invesco announced its decision to halt plans to launch a Bitcoin Strategy exchange traded fund (ETF) just hours before the fund was due to list in New York.

Invesco said regulatory constraints would make it too expensive for investors. 

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One issue was that the Securities and Exchange Commission (SEC) was only planning to allow ETFs with 100% exposure to bitcoin futures. Invesco, meanwhile, wanted a portfolio that was a mix of futures, swaps, physical bitcoin, ETFs and private funds investing in the bitcoin industry, to help protect investors in the event of a liquidity crunch.

It would have been the second such ETF to launch, after the ProShares Bitcoin Strategy ETF (BITO) debuted in October.

Major cryptocurrencies followed bitcoin down on Monday, with ethereum, the world's second-largest crypto by market cap, falling 3% to trade at $4,217.

Ethereum's price on Monday. Chart: Yahoo Finance UK
Ethereum's price on Monday. Chart: Yahoo Finance UK

Meme tokens dogecoin and shiba inu were both down by 2%.

One cryptocurrency bucking the trend was solana, which rose by 3%. Many experts think that Solana's blockchain platform could beat Ethereum to become the world’s pre-eminent network for decentralised finance.

Watch: What is bitcoin?

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