Moody's Issues Rating for New Hampshire's Groundbreaking Bitcoin Bond Initiative
The credit rating agency Moody's has given New Hampshire's innovative bond initiative a provisional Ba2 classification, categorizing it as sub-investment grade due to concerns over Bitcoin's price fluctuations.
The groundbreaking Bitcoin-collateralized municipal bond initiative from New Hampshire has advanced significantly toward becoming a reality following its evaluation by Moody's Investors Service, which was announced on Tuesday.
According to a Tuesday announcement, Moody's Investors Service has granted New Hampshire's innovative Bitcoin bond initiative a provisional Ba2 classification, categorizing it within the "speculative grade" tier and suggesting these bonds carry considerable credit risk exposure.
Obtaining a ratings evaluation represents a crucial milestone for this proposed bond offering. Credit ratings provide institutions with a framework for evaluating risk levels and informing their investment strategies. Certain institutional market participants operate under mandates that restrict their investments exclusively to securities classified as investment-grade.
When a rating is designated as provisional, it signifies that Moody's has completed its examination of all essential documentation required to render its assessment, but remains in wait for certain concluding legal paperwork before issuing the definitive rating.
Typically, the following phase involves pricing the financial instrument ahead of its market debut, although this specific bond offering has yet to announce a confirmed release date.
Moody's Ba2 rating impacted by Bitcoin volatility
This Ba2 classification positions the initiative a single notch beneath investment-grade standing, conveying to potential investors that this represents a speculative opportunity. The primary factor Moody's emphasized in determining its risk classification was Bitcoin's characteristic price volatility.
Our analysis includes various assumptions consistent with our methodology, including a 72.06% advance rate and a two-day exposure period, corresponding to a Ba2 rating for Bitcoin collateral. The advance rate reflects an assessment of Bitcoin's historical volatility and liquidity.
Moody's
Available market data suggests that Bitcoin's price volatility has experienced a consistent downward trajectory through the years, yet it continues to register higher levels compared to assets such as gold and particular equity indices.
Bitcoin volatility has been on a material downward trend, but it remains significantly higher than both the Nasdaq-100 and gold, driven by idiosyncratic factors specific to the crypto ecosystem.
S&P Global
New Hampshire signed off bond in November
Last November, the New Hampshire Business Finance Authority (BFA) gave its approval to the state's Bitcoin-collateralized municipal bond initiative, asserting that this would mark the first instance globally of a state government issuing such an instrument.
According to the BFA's outline, the initiative would commence with bonds valued at $100 million, creating a mechanism through which businesses can obtain loans using overcollateralized Bitcoin holdings.
The role of custodian for the BTC collateral has been assigned to BitGo Trust Company Inc., while the initiative's architecture was developed by investment management firm Wave Digital Assets working alongside fixed-income specialist Rosemawr Management.
According to the New Hampshire BFA, revenue generated through the program will "support the creation of the Bitcoin Economic Development Fund, allowing the authority to reinvest in programs that promote business growth and financial innovation across New Hampshire."