New Hampshire Pioneers Bitcoin-Backed Municipal Bonds
In an unprecedented move, New Hampshire has become the first state in the United States to approve a municipal security explicitly backed by Bitcoin. This innovative $100 million “conduit” bond utilizes over-collateralized Bitcoin as its primary backing, instead of relying on tax revenues or project cash flows. The state’s Business Finance Authority (BFA) has positioned New Hampshire as a trailblazer in integrating digital assets into the expansive $140 trillion global bond market.
New Hampshire Leads the Charge in Bitcoin Adoption
Governor Kelly Ayotte highlighted this initiative as a strategic effort to attract capital while safeguarding residents from financial risk. She expressed pride in New Hampshire’s role as a forerunner in embracing cutting-edge technologies, stating, “This historic Bitcoin-backed bond is an innovative approach to bring investment opportunities to our state, establishing us as a leader in digital finance without endangering state funds or taxpayer dollars.”
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Innovative Structure of the Bitcoin-Backed Bond
This bond follows a conventional conduit model where the BFA authorizes issuance, yet the credit risk lies with the private borrower rather than the state’s general fund. The novelty here lies in its collateral package. The borrower is required to post approximately 160 percent of the bond’s notional value in Bitcoin, which is securely held by digital asset custodian BitGo. Should Bitcoin’s price drop, reducing the collateralization ratio to about 130 percent, an automatic liquidation of part of the Bitcoin stack is triggered. This mechanism ensures the protection of bondholders and the preservation of principal, with the BFA supervising the framework without guaranteeing repayment.
Groundbreaking Collaboration and Economic Impact
The bond’s structure was crafted by Wave Digital Assets and municipal specialist Rosemawr Management, with BitGo serving as custodian and Orrick, Herrington & Sutcliffe providing legal guidance. Les Borsai, co-founder of Wave, described the transaction as “the opening of a new debt market,” showcasing the potential for public and private sectors to collaboratively unlock digital asset value responsibly. Orion Mountainspring, partner at Orrick, hailed it as “the first municipal security backed by cryptocurrency,” with the potential to revolutionize digital currency and municipal finance.
Fees and any appreciation in Bitcoin linked to the transaction will be directed into a dedicated Bitcoin Economic Development Fund. This fund is designed to bolster innovation and business growth within New Hampshire, enhancing the state’s economy rather than its general budget. The bond aligns with New Hampshire’s recently approved Strategic Bitcoin Reserve, allowing the state treasury to allocate up to 5 percent of its funds into well-capitalized digital assets, effectively making Bitcoin the primary candidate given current market conditions.
Strategic Approach and Future Implications
Republican representative Keith Ammon, a key advocate for Bitcoin legislation in New Hampshire, presented this framework as a controlled experiment to assess Bitcoin’s potential as high-grade collateral for public finance. By utilizing over-collateralization and pre-defined liquidation thresholds, officials contend that Bitcoin’s inherent volatility is mitigated within this structured framework, shielding taxpayers from direct financial losses.
The scalability of this model beyond its initial authorization will hinge on factors such as investor demand, pricing, and ratings. As New Hampshire brings the concept of Bitcoin-backed public debt from theory to practice, it establishes a working model that other states and issuers can study and potentially replicate.
At the time of writing, Bitcoin is trading at $91,401.
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