Amid Bukele's bitcoin hype, not all Salvadorans 'Feel the Bit'

SAN SALVADOR, (Reuters) - El Salvador's President Nayib Bukele took the stage last weekend at the end of "Bitcoin Week" to the cheers of fans delighted his Central American country has become the first to adopt crypto currency as legal tender, alongside the U.S. dollar.

Bukele, 40, wearing his signature backwards baseball cap, referred to himself as a "savior" as he unveiled plans to build "Bitcoin City" at the base of the Conchagua volcano overlooking the Pacific.

Funded by bitcoin-backed bonds and powered by geothermal energy, the city would offer a tax-free haven. "Invest here and earn all the money you want," he told the euphoric crowd.

Supporters have hailed Bukele's plans - including making bitcoin legal tender in September - saying they would bring jobs, financial inclusion and foreign investment to one of the Western Hemisphere's poorest countries.

"Feel the Bit" read the giant screen before Bukele who brands himself "CEO of El Salvador" on Twitter came on stage.

But some in El Salvador and beyond expressed outrage at the glitzy event in a nation beleaguered by inequality, violence and poor public services.

"This video makes me sick, angry and sad at the same time," said Marce, twitter user @_lamismadeayer.

The government says the issuance of $1 billion in "Volcano bonds" in partnership with Blockstream - a digital assets infrastructure company - would provide development funds. El Salvador currently faces a $500 million budget gap for next year according to credit rating agency Fitch.

But the bitcoin bond is not designed to cover that gap. Half of the bond money would go to infrastructure, including for building Bitcoin City, with the remainder used to purchase bitcoin and locked up for five years. After the lock up, the bitcoin can be sold, generating a capital return that will be split 50-50 between the government and investors, only after the initial $500 million are recouped, according to the plan.

The 10-year bitcoin bond offers a 6.5% coupon, payable yearly, but another Salvadoran bond that matures in 2032 is currently yielding close to 13.9%.

Financial markets have reacted warily. The spread of Salvadoran yields to safe-haven U.S. Treasuries has widened sharply since late April. This week it added an extra 79 basis points and sits above 1,200 bps, its widest ever.