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Author: Eleanor Terrett, Source: Crypto In America, Compiler: Shaw Bitcoin Vision
The US state of New Hampshire just became the first state to approve municipal bonds backed by Bitcoin, a milestone that could pave the way for digital assets to enter the $140 trillion global debt market.
Monday,The New Hampshire Business Finance Authority (BFA) approved a first-of-its-kind $100 million Bitcoin-backed “conduit” bond that allows businesses to borrow against overcollateralized Bitcoin held in private custodians as security.
Although BFA is a state entity, the bonds are not guaranteed by state governments or taxpayers.The BFA only acts as an intermediary, responsible for approving and supervising transactions, and does not bear the risk of repayment, while investors are protected by the Bitcoins hosted by BitGo..
Just a few months ago, New Hampshire became the first state in the country to allow its fiscal department to invest up to 5% of public funds in digital assets, establishing the first strategic Bitcoin reserve in the United States.
Governor Kelly Ayotte, who signed the Strategic Bitcoin Reserve Act in May, celebrated the milestone.
“I’m proud that New Hampshire is once again the first in the nation to embrace new technology and issue this historic Bitcoin-backed bond,” she said.“This is an innovative way to bring more investment opportunities to our state and put us at the forefront of digital finance without jeopardizing state funding or taxpayer dollars.”
Bond operating mechanism
Wave Digital Assets has partnered with municipal bond specialist Rosemawr Management to design the bond, which aims toConnect digital assets to traditional debt markets, using Bitcoin as collateral and following the same rules as municipal and corporate bonds.
Republican Rep. Keith Ammon, who sponsored the state’s Strategic Bitcoin Reserve bill, said the bond is effectively a “sandbox” to test how Bitcoin can function as high-quality collateral in government finance.
Keith Ammon said: “The BFA is self-funded, so they can collaborate to build this structure, prove this concept, and ultimately this may lead to real Bitcoin bonds issued by state governments.”
According to the proposed plan,Borrowers will use Bitcoin as collateral for approximately 160% of the bond’s value.Liquidation mechanism will ensure bondholders are fully compensated if Bitcoin price falls to around 130%.Keith Amon said this arrangement would allow borrowers to release funds without having to sell Bitcoin or trigger a tax event.
According to BFA Executive Director James Warham, fees from the bond transactions, as well as any proceeds from the Bitcoin collateral, will flow into the Bitcoin Economic Development Fund, a program designed to support innovation, entrepreneurship and enterprise development across the state.
The bonds are guaranteed by Orrick, a top municipal bond law firm that helped New Hampshire structure the deal.
“We are pleased to support the launch of New Hampshire’s first cryptocurrency-backed municipal bond,” said Orion Mountspring, a partner at Orrick LLP.“This is huge for digital currencies and municipal finance.”
Bitcoin opens the door to $140 trillion global debt market
Cryptocurrency-backed loans have existed in the private market for years, but have never been seen in the U.S. municipal finance sector — a market traditionally characterized by conservative risk appetite, stable collateral and decades-old underwriting rules.If New Hampshire’s model is successful, it could serve as a model for other states.
Les Borsay, co-founder of Wave Digital Assets, said: “This is more than just a transaction, it marks the opening of a new debt market. We believe this structure demonstrates how the public and private sectors can work together to responsibly unlock the value of digital assets and digital asset reserves.”
The global bond market is worth approximately US$140 trillion, of which the US market value reaches approximately US$58.2 trillion, making it the world’s largest fixed income market..
Today, many cryptocurrency reserves sit idle like vaults, failing to function as active financial instruments.Les Borsé envisions issuers putting these reserves to work within a fully regulated framework, by generating returns, providing loan guarantees and supporting economic projects.Achieving this will require institutional involvement, such as pension funds or retirement plans, to cautiously dabble in digital assets without increasing overall risk.
He said BFA’s Bitcoin-backed bonds set an example for how cryptocurrencies can be safely integrated into the traditional financial system and promote economic growth.He also added,Institutional investor interest may rise as bond ratings come out, which would pave the way for more products based on fixed-income instruments and derivatives, not just ETFs, which have exploded on Wall Street over the past two years.
