The State of New Hampshire’s Economic Finance Corporation is preparing for the first-ever issuance of rated, Bitcoin-backed bonds. This development stands out as an important step towards integrating cryptocurrencies into traditional public financing instruments.
Structure and operation of Bitcoin covered bond
According to published information, the bonds were rated Ba2 by Moody’s Ratings, which is two notches below investment grade. The planned bonds will be issued through the New Hampshire Economic Finance Authority. As collateral, Bitcoins stored by BitGo will be used.
The bonds will be repaid from Bitcoin sales, not from a business’ cash flow in the traditional way. If necessary, the collateral Bitcoins held by BitGo will be sold and both interest and principal payments will be made. In the model in question, the collateral excess is kept at 1.6 times; Within the scope of credit-specific measures, if certain rates fall below, the compulsory liquidation mechanism comes into play.
Moody’s emphasized that they took Bitcoin’s price volatility into consideration during their ratings, and that this plays a decisive role in the bond’s return profile. The company developed scenarios to measure credit risk based on a 72 percent pre-financing rate and short liquidation periods.
Risk of public funds and legal framework
In the bond structure, public resource risk is completely eliminated. Because the bonds are designed on a “limited recourse” basis, no payment will be made from New Hampshire state public funds. This situation puts the bond in a special place for both investors and public authorities.
Although the bonds to be issued are offered to the market through a public authority, the state of New Hampshire does not have a direct financial guarantee. The model will operate more like transition or project finance applications; Here, the institution only acts as an intermediary.
The innovative structure brings Bitcoin into a rarely encountered financial arena: government securities. Moody’s Ba2 rating, although speculative, indicates that rating agencies are developing evaluation methods for crypto-collateralized debt instruments.
Institutional investors continue to explore different ways to value Bitcoin beyond traditional financial instruments. Prior to this bond issuance, the US Department of Labor, under the directive of President Donald Trump, prepared a new regulatory proposal that would facilitate access to digital assets in retirement portfolios.
