Generally, bonds serve as a financial tool leveraged by governments or institutions to raise funds from the private and public markets. They are clearly defined as fixed-income securities. This is because there is a known amount that investors will hold until the bonds reach maturity. Therefore, all bonds come with a maturity date that indicates the timeframe in which investors will continue to hold those bonds.
However, funds generated from bonds help government functionaries execute public projects, including infrastructure. This explains how important bonds are to today’s financial market. When the maturity stage reaches, the issuer of the bond will return the amount borrowed from investors.
Meanwhile, there is a term identified as a Bond coupon. This term refers to the interest rate connected to a bond. A Bond coupon is often determined by the market and has a set schedule for payout. The payout can be quarterly, bi-annually, or annually. Also, there is also a value date in which money invested in the bonds will begin to accumulate interest.
Without any doubt, there are scores of bonds in today’s contemporary world. One of these bonds is called a Bitcoin bond. Unlike other traditional bonds, a Bitcoin bond cones with a component of the crypto asset. The first country to adopt such a trend is El Salvador. Then, the president of the country, Nayib Bukele unveiled a $1 billion bond with Bitcoin backing.
The financial tool is geared toward building public projects, like the proposed Bitcoin City. Participants in the bond will get their payment yearly at the rate of 6.5%. Although the new bond witnessed unprecedented criticism, scores of investors showed interest and participated. Hence, this article will focus on examining the advantages of this kind of bond.
Advantages of Bitcoin Bonds
A Bitcoin bond has numerous advantages, for every party involved; the issuer and the buyer. For the issuer, it provides them with a stream of accumulating funds seamlessly from the private and public markets. Also, this benefit is extendable to governmental and institutional bodies. This is due to its flexibility in fitting into various systems. For the buyer, a Bitcoin bond is an investment instrument with a reliable tendency to yield returns. Like a traditional bond, the Bitcoin counterpart also has a fixed rate return.
In addition, traditional bonds are mostly sold to institutional investors like banks, insurance companies, and pension funds among many others. Similarly, individual investors can acquire them through brokers. Most individual investors don’t fancy this financial tool due to the rigorous process attached to their purchase. On the flip side, the lackluster approach of individual investors to bonds made it uncommon among businesses as a medium of raising capital.
Accordingly, Bitcoin bonds are more attractive and open to individual investors. This is due to how investors can acquire and sell them on cryptocurrency exchanges like Bitfinex. Owing to this, individuals and governmental institutions can adopt Bitcoin bonds as a medium of raising capital. This is due to how it is attractive to individual and institutional investors, as a result of the flexibility of purchasing them
Furthermore, for the crypto landscape, Bitcoin bonds illustrate how blockchain initiatives are suitable for various industries. Likewise, it is an effective innovation that can help drive the mainstream adoption of cryptocurrency. Another significant benefit of Bitcon bond is how it can relax the hostility of government institutions towards cryptocurrency. This blockchain innovation will encourage countries that adopt it to look towards regulating cryptocurrency in their domain. Thus, resulting in the introduction of a regulatory framework for cryptocurrency in these countries.
Conclusion
Bitcoin bonds are still at an evolving stage and are yet to hit a noticeable adoption. It is worth mentioning that the two most significant Bitcoin bond initiatives endured stern criticism following their introduction. Both Bank to the Future and El Salvador are pacesetters of Bitcoin bonds. The former recorded a low turn-out from investors while El Salvador was criticized by various international bodies. Despite this negative reception, Bitcoin bonds remain a transformative financial tool that’s capable of changing existing narratives.