El Salvador - Hong Kong-based Bitfinex is buying something in El Salvador. And LaGEO could be it.
Bukele needs to raise funds to meet a January 2023 debt payment. The geothermal unit of El Salvador’s energy company CEL is important for Bitcoin miners who want renewable energy.
El Salvador’s El Zonte Capital said on 23 May that Hong Kong-based Bitfinex is making an investment into the fund led by Bitcoin investors Max Keiser and Stacy Herbert.
Salvadoran researcher Ricardo Valencia drew a comparison between a slice of Tether reserves denominated in non-US govt bonds and the amount someone on 9 May paid for $286mn in LaGEO tokenized securities. It’s possible that El Zonte Capital is the middle man between LaGEO securities and foreign investors - like Bitfinex. But that’s still unconfirmed.
One thing is clear, though. The leadership at Bitfinex and Blockstream are closely aligned and they want to mine Bitcoin with geothermal energy. Samson Mow told the Bitcoin community on 26 May that mining sustains Blockstream’s R&D, which is where developers are working Lightning and Liquid infrastructure. Mining is key for funding research. LaGEO owns geothermal energy assets.
It seems there is a clear political trade-off happening in El Salvador: Bukele needs foreign investment. He’s willing to sell hard assets like LaGEO and soft assets like passports and residency in exchange for that investment. Likewise, Bitcoin Libertarians want a president who will allow them to play and build in a policy sandbox where they can try out their Bitcoin experiment. In exchange for the investment and the promotion that Bitcoiners give Bukele, they are getting something of a free trade zone - at least on paper.
It’s a risky game to make this country a free trade zone sandbox, since El Salvador suffers from bouts of violence that history shows can be very volatile. Its gang problem and the migration crisis caused by gang activity is of key concern to Washington, so it is unlikely that Bitcoiners escape the scrutiny of DC decision-makers just because they are in a small, foreign country. Quite the contrary, this will probably draw scrutiny.
One possible scenario is that Bukele manages to keep violence down and use Bitcoin wallets like Chivo, Strike and Muun to bring down the costs of remittances. That would satisfy his base and Bitcoin investors simultaneously. If he can also successfully privatize LaGEO and pay off bondholders, then there will be relative stability in El Salvador. That is good for more Bitcoin-related investment. This scenario is highly optimistic for where El Salvador is right now. Bukele is running out of time ahead of his January 2023 payment deadline.
A more likely scenario is that Bukele’s crypto adoption policy falls short and remittances continue flowing through traditional bank plumbing. That will frustrate business owners who poured investment into pointlessly upgrading their POS systems. It will also frustrate Bitcoin investors who believed that Bukele possessed the magic adoption wand.
Likewise, a LaGEO privatization could be fraught with irregularities at best and full on embezzlement at worst. There are political sectors who will cry foul if they smell self-enrichment tied to the government’s sales of hard and soft assets. That would damage Bukele’s administration. It would also hurt Bitcoin companies who have tied their success to his mandate.