El Salvador / Transparency
“Merlin the Magician”: The Crypto Kingpin Who Will Issue El Salvador’s Bitcoin Bonds

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Jimmy Alvarado y Nelson Rauda

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A company banned from doing business in New York State, the same that will sell a billion dollars of government-issued bitcoin bonds in El Salvador, registered in the country on February 18, hastening the pace of the experiment looking to allow Nayib Bukele’s administration to capture money from an alternative market —crypto-investors— as the prospects for financing from the International Monetary Fund run out.

“El Salvador is all in. The destinies of El Salvador and Bitcoin are linked,” Samson Mow, the main crypto bond lobbyist, said in a virtual conversation with Mónica Taher, one of Bukele’s chief technology officers. As the value of El Salvador’s bonds is tailspinning and risk-rating agencies see an increasing risk that the government may default on its debt obligations, the administration is promoting bonds denominated in bitcoin as the solution: “It is entirely possible for the country to completely eliminate its external debt in 10 years with one or two bitcoin bonds,” Mow promises.

The government has said it would invest half the money raised from the new bonds in buying bitcoin and the other half in bitcoin mining infrastructure and building Bitcoin City. To issue the bonds, the country would need to approve a digital securities law in a series of financial reforms that President Nayib Bukele announced in February. 

Through an exchange for the bonds run by the company Bitfinex Securities, the government will accept U.S. dollars, bitcoin, and tether, according to a presentation made by Bukele during his Bitcoin Bond unveiling in November, marking the entrance of the latter cryptocurrency into the country’s financial system.

Salvadoran President Nayib Bukele announces the issuance of government bonds denominated in bitcoin and the construction of Bitcoin City during the Latin American Bitcoin Conference on Nov. 20, 2021. Photo: Casa Presidencial.
 
Salvadoran President Nayib Bukele announces the issuance of government bonds denominated in bitcoin and the construction of Bitcoin City during the Latin American Bitcoin Conference on Nov. 20, 2021. Photo: Casa Presidencial.

When Bukele announced the bonds in November at an extravagant beach party, he branded them “volcano bonds” on the promise to use part of the proceeds to construct bitcoin mining infrastructure powered by geothermal energy from volcanoes. Next the company Blockstream —led by the bitcoin lobbyist Mow until the end of February— announced the Salvadoran government would grant it the first license under the new digital securities law. In El Salvador, Blockstream and Bitfinex have admitted to helping write the laws under which they are going to operate. Bitfinex’s chief of technology told El Faro that he does not see this as a conflict of interest because they will not charge fees on the sale of the bonds.

Both public debate of the law and the timing of bond issuance have been delayed. Mow and Bukele began the year saying the digital securities law was imminent. In December, Bitfinex told El Faro that they expected to issue the bonds in February. Treasury Minister Alejandro Zelaya appeared in a television interview on February 8 and asserted that they would be issued on March 15. The Bukele-controlled legislature has yet to study the reforms, a prerequisite for sending them to a vote.

Banned from New York

Behind Bitfinex is an Italian businessman named Giancarlo Devasini, described in the Financial Times (FT) as 'one of the most influential players in the global cryptocurrency market.' Devasini, born in 1964, is a plastic surgeon who left practice in the early 1990s to sell electronics and computer parts. It was in that world that he adopted the nickname Merlin, after the mythological wizard who advised King Arthur and his court. He is portrayed as an elusive character with a minimal online presence. The FT mentions legal settlements with Microsoft or Toshiba who sued Devasini for counterfeiting and patent infringement, respectively.

Devasini and his Dutch partner Ludovicus Jan van der Velde own a web of nine companies in the British Virgin Islands, Hong Kong, and Kazakhstan that run the Bitfinex currency exchange and the cryptocurrency tether, according to a lawsuit filed in Seattle, Wa., and open regulatory investigations in New York. Tether, the leading stablecoin in the cryptocurrency market, is less volatile than bitcoin because each virtual coin is equivalent to one U.S. dollar. At the time of publication the value of all Tether in circulation, according to Coin Ranking, was estimated at 80.3 billion dollars

The two are listed as co-administrators of Bitfinex Securities El Salvador.

The owner of Tether and Bitfinex, Giancarlo Devasini, on the cover of Bloomberg Businessweek in October 2021. In February 2022 he opened a chapter of Bitfinex in El Salvador. The company will issue one billion dollars
 
The owner of Tether and Bitfinex, Giancarlo Devasini, on the cover of Bloomberg Businessweek in October 2021. In February 2022 he opened a chapter of Bitfinex in El Salvador. The company will issue one billion dollars' worth of Bitcoin Bonds and the Salvadoran government says it will accept dollars, bitcoin, and tether as payment.

While the company Tether has long claimed that it maintains one U.S. dollar in reserves for every tether it releases into the market, the New York Attorney General’s Office argued otherwise. 'Bitfinex and Tether misled customers and the market by overstating reserves, concealing approximately $850 million in losses worldwide,' wrote Attorney General Letitia James in February 2021. A settlement with Bitfinex, Tether, and related companies barred them from doing business in New York State, the heart of the global financial system, and imposed millions in fines.

It’s not the only recent case against Devasini in U.S. federal court. In November 2019, a class action lawsuit was filed against his companies in the Western District of Washington accusing them of inflating the value of their reserves through the issuance of non-dollar-backed Tether and price manipulation of bitcoin. The lawsuit also cites a study holding Tether responsible: 'Tether was responsible for 48.8% of the Bitcoin price increase in 2017 during the period when the Bitcoin bubble occurred.'

A report in Bloomberg Businessweek from last October explains Tether’s usefulness in the cryptocurrency ecosystem. “Think of the cryptocurrency exchanges as gigantic casinos,” the report says. “Many of them cannot use dollars because the banks won’t open accounts for them, for fear of inadvertently facilitating money laundering. So, when clients want to make a bet, they first need to buy Tethers. It is as if Montecarlo’s poker rooms and Macau’s slot-machine rooms sent all the gamblers to a central cashier to buy tokens.”

“Merlin the Magician” in the Legislative Assembly

At the legislative session on Feb. 8, the Bitcoin Bond architect Samson Mow and other foreigners posed in a photo with eight Nuevas Ideas deputies including the chair of the Finance Committee, Dania González, and the head of the Nuevas Ideas party, Christian Guevara. In the background was Giancarlo Devasini. Unlike other figures in the cryptocurrency world, Devasini posted nothing about his visit to El Salvador on social media and was not tagged in any posts. Tether did not respond to this newspaper’s February 22 request for comment on the visit, and Devasini did not respond to an interview request.

In contrast to Devasini’s low public profile, Samson Mow has been a ubiquitous figure in Salvadoran politics since he appeared alongside the president at the beach party where Bukele announced the construction of Bitcoin City. On February 10, he posted a photo with Nayib Bukele at Casa Presidencial and said that Bukele endorsed him as the first mayor of the not-yet-constructed Bitcoin City.

Mow was the connection for Bitfinex to secure the government contract to sell the bonds. He says that he arrived in El Salvador before the Bitcoin Law was announced, upon the invitation of Jack Mallers, the U.S. entrepreneur who broke the news of the new law and was in charge of developing the government’s digital wallet before his company was replaced by Athena. “(Mallers) asked me to write a letter of support,” Mow said in the virtual conversation with Taher, “basically to ensure that the law was well-received by the bitcoin community.”

Giancarlo Devasini (back right), who opened Bitfinex Securities El Salvador SA de CV in February, appears behind ruling party deputies and Samson Mow (far left) on Feb. 8, 2022. Photo posted to social media by ruling party legislator William Soriano.
 
Giancarlo Devasini (back right), who opened Bitfinex Securities El Salvador SA de CV in February, appears behind ruling party deputies and Samson Mow (far left) on Feb. 8, 2022. Photo posted to social media by ruling party legislator William Soriano.

In the 1990s, President Armando Calderón Sol bet on “turning the country into a big maquila.” A decade later, President Antonio Saca turned to call centers. The Bukele administration has chosen bitcoin. His administration has even explored the possibility of creating its own cryptocurrency. Before the announcement of the bitcoin law, President Bukele’s brothers, who hold no formal positions in the administration, planned the creation of a national stablecoin.

William Soriano, a Nuevas Ideas deputy and member of the Financial Committee, participated in the same conversation with Mow and Mónica Taher. “We lack a monetary policy,” he said. “We need a currency that protects purchasing power and breathes new life into recapitalizing the economy, to create thousands of jobs and infrastructure and a feasible development model for the entire world.”

*Translated by Jessica Kirstein

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