Bitcoin Enters the Public Bond Market, Moody’s Issues World’s First Crypto-Collateralized Bond Rating

On March 31, Moody’s Ratings assigned a provisional credit rating of Ba2 to a bond issued by the New Hampshire Business Finance Authority (BFA) that is collateralized by Bitcoin. This marks the first time a traditional rating agency has conducted a credit assessment on a Bitcoin-collateralized municipal bond in history.

Image Source: MOODY’S Ratings & Regulatory

What is this bond?

This is a $100 million Bitcoin-backed taxable revenue bond linked to the Waverose Finance Project, divided into two series, 2026A-1 and 2026A-2, both maturing in 2029.

The bond was structured by Wave Digital Assets, with Rosemawr Management serving as the investment manager and Orrick providing legal services. Fees obtained by the BFA from the transaction will be used to establish a “Bitcoin Economic Development Fund.”

The core of the bond structure lies in its reliance not on any entity’s cash flow, but on direct repayment collateralized by Bitcoin. The Bitcoin collateral is custodied by BitGo Trust Company, Inc. in regulated cold storage.

When the borrower needs to pay interest or repay principal, the collateral will be liquidated to cover the expenses. The bond also includes a relatively favorable clause for holders. Series A-2 holders have the right to receive an additional share of BTC profits after full repayment of principal and interest at maturity, provided the Bitcoin price is higher than on the pricing date.

Compared to Bitcoin lending tools on platforms like Coinbase, the most significant aspect of this bond is that it provides क्रिप्टोcurrency with its first opportunity to enter the public debt market for financing. Borrowers no longer rely on private loans from centralized platforms but, by obtaining a publicly rated bond with a traditional credit rating, can leverage institutional capital on a large scale and at low cost within a compliant framework.

How do institutions assess Bitcoin’s risk?

In its report, Moody’s stated that the provisional rating primarily reflects risks related to collateral, structure, and operations, with Bitcoin’s high volatility being the primary consideration.

To hedge against price volatility, the issuance structure incorporates a 1.6x overcollateralization requirement. The value of the BTC collateral must always be maintained at over 160% of the debt exposure.

Once the collateral ratio falls to the 1.4x trigger level (i.e., the LTV deteriorates to approximately 71%), a mandatory full redemption mechanism will be triggered, causing the bond to mature early and the Bitcoin to be liquidated for repayment.

In other words, to borrow $100, at least $160 worth of Bitcoin must be pledged as collateral. If the collateral value shrinks below $140, the system triggers forced repayment, the bond matures early, and the Bitcoin is sold to repay the debt.

For conservatism in its assessment, Moody’s used a 72% advance rate and a short liquidation window in its rating report, simulating an extreme scenario where the Bitcoin price falls approximately 28% from the pricing date. Testing showed that the 1.6x initial overcollateralization and the 1.4x trigger mechanism still provide sufficient protection, thereby supporting the Ba2 rating outcome.

This parameter design is quite conservative, but for an asset whose historical drawdowns have frequently exceeded 50%, this conservatism might also be a prerequisite for Moody’s willingness to assign a rating.

Another detail worth noting separately is that, although this bond bears the name of the New Hampshire Business Finance Authority, it has no connection to the state’s public credit. Moody’s explicitly stated in its report that no public funds from the state can be used to repay this bond.

The issuer plays the role of a “conduit issuer” in the structure, providing the issuance channel and nominal endorsement but assuming no credit guarantee responsibility.

This structure is not uncommon in the traditional municipal bond field and is often used for financing special projects in healthcare, education, etc.

Why is this transaction important?

To understand the historical significance of this bond, it must be viewed within a broader context.

Over the past few years, institutional attitudes towards Bitcoin have gone through three stages: from shutting it out, to holding it as an asset (BTC reserves on corporate balance sheets), to using it as collateral for financing (pledging BTC for fiat loans). This bond represents the beginning of a fourth stage: Bitcoin, as the underlying collateral for a publicly rated debt instrument, has entered the track of the traditional public financial market.

This track signifies three things: opening a window for institutional investors to gain indirect Bitcoin exposure through compliant channels; prompting Moody’s to begin establishing a rating methodology for crypto collateral, attracting more rating agencies to follow suit; and proving that Bitcoin can, under certain conditions, serve as the underlying logic for an “interest-bearing asset,” not merely a zero-interest holding.

This bond is not an isolated event. Concurrently, the U.S. Department of Labor, based on an executive order from President Trump, issued a proposal to expand the permissible scope of digital assets in retirement investment portfolios; several states are reviewing “Bitcoin strategic reserve” legislation; New Hampshire is also the first state in the U.S. to pass a cryptocurrency reserve law.

Viewed plainly, a Ba2 rating is considered “junk bond” level, but this label itself can be misleading. In Moody’s rating sequence, Ba2 is the second tier within the speculative grade, still quite a distance from the bottom ratings (C/D).

Tesla only received investment-grade ratings from S&P and Moody’s successively between 2022 and 2023; Ford still maintains a speculative grade (Ba1) in Moody’s system and barely holds onto the lowest investment-grade tier with a negative outlook in S&P’s system. This does not prevent them from being important allocation targets for institutional investors.

Secondly, the fact that this bond received Ba2 rather than a lower rating itself indicates that the 1.6x overcollateralization combined with the forced liquidation mechanism passed Moody’s stress test under relevant scenario simulations. Therefore, Ba2 reflects the conservatism of the structural design, not a simple rejection of the Bitcoin asset itself.

Looking at historical precedents, the first MBS (Mortgage-Backed Security) and the first green bond also experienced similar starting points when entering the rating system. As pricing experience accumulated and structural norms matured, their ratings often improved. In this sense, Ba2 is merely a starting point.

यह लेख इंटरनेट से लिया गया है: Bitcoin Enters the Public Bond Market, Moody’s Issues World’s First Crypto-Collateralized Bond Rating

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