New Hampshire is on the verge of launching a groundbreaking Bitcoin-backed municipal bond, having received a provisional rating from Moody’s Investors Service on Tuesday. This historic initiative has been assigned a Ba2 rating, categorizing it as “speculative grade” and highlighting significant credit risk associated with the investment.
The importance of this ratings assessment cannot be overstated, as it plays a crucial role in helping institutions evaluate credit risk and make informed decisions. Many investors are restricted to investing only in bonds classified as investment-grade, so the provisional Ba2 rating suggests that while some interest may exist, a higher level of scrutiny will be necessary before attracting a broader pool of institutional investors.
Moody’s provisional rating indicates that they have reviewed most required documentation but are awaiting final legal documents for a complete assessment. Typically, the next step involves pricing the product before its market launch; however, no official date for that launch has been established yet.
The Ba2 rating reflects concerns over Bitcoin’s inherent volatility, which Moody’s identified as a key factor in its risk evaluation. Their analysis incorporates a 72.06% advance rate and a two-day exposure period tailored for Bitcoin collateral. The advance rate specifically considers Bitcoin’s historical performance in terms of volatility and liquidity.
Despite some reports indicating that Bitcoin’s volatility has been gradually decreasing, it continues to exceed the fluctuations observed in traditional assets, including gold and various stock indexes. S&P Global also noted a downward trend in Bitcoin volatility but emphasized that it remains significantly more unstable than equity indices or gold, influenced by factors intrinsic to the cryptocurrency market.
The municipal bond initiative received initial approval from the New Hampshire Business Finance Authority (BFA) in November, marking the state as a pioneer in the global issuance of Bitcoin-backed bonds. The project is set to launch with $100 million in bonds, enabling companies to secure loans against overcollateralized Bitcoin holdings. Custodianship for the Bitcoin collateral is being managed by BitGo Trust Company Inc., while asset manager Wave Digital Assets is spearheading the project in conjunction with bond specialist Rosemawr Management.
Furthermore, the BFA has indicated that the proceeds from this bond program will contribute to the establishment of the Bitcoin Economic Development Fund, a venture aimed at reinvesting in initiatives that foster business expansion and financial innovation throughout New Hampshire. This ambitious effort suggests a progressive approach to integrating cryptocurrency into traditional financial systems, potentially setting a precedent for other states and municipalities.
