New Hampshire’s plan to establish a Bitcoin-backed $100 million municipal bond that Governor Kelly Ayotte has heralded as “historic” will be presented this week to the state’s five-member Executive Council as proponents seek final approval for the project.
James Key-Wallace, executive director of the New Hampshire Business Finance Authority, asked the governor and council to hold a public hearing, find that the proposal would be both feasible and beneficial to the public, and greenlight the initiative. The hearing is slated for Wednesday morning.
If the council signs off on the plan, then the quasi-governmental Business Finance Authority will issue what it has described as a “groundbreaking” municipal bond using a model that Key-Wallace said will position New Hampshire as “a global leader in responsible crypto finance.”
The idea, part of a broader effort to attract blockchain-related innovation to New Hampshire, is that the Business Finance Authority would gain access to a revenue stream to support its programs to further spur investment opportunities without placing public funds at risk. Unlike with a typical municipal bond, investors would be repaid by a private borrower, not the government.
Although the notoriously volatile price of Bitcoin could trigger an automatic liquidation before the three-year term runs its course, the state would be shielded financially in the event of a market downturn, according to documents Key-Wallace submitted to the council. That’s because the loan agreement establishes a conduit between private investors and a private borrower, with the cryptocurrency as collateral.
“This is an innovative way to bring more investment opportunities to our state and position us as a leader in digital finance without risking state funds or taxpayer dollars,” Ayotte said in a statement last fall.
That said, Moody’s assigned provisional “Ba2” ratings in March, signaling to potential investors that the bonds offered under this plan would be “speculative” and carry “substantial” credit risk — which places them in a category often called “junk” bonds.
Keith Ammon, a Republican state representative from New Boston at the forefront of cryptocurrency policymaking in New Hampshire, told the Granite State News Collaborative earlier this year that the Moody’s rating “makes sense” as a cautious starting point, given the novelty and volatility involved.
David Krause, an emeritus associate professor of finance at Marquette University, penned a paper dissecting New Hampshire’s plan. He crunched the numbers and found Bitcoin price fluctuations in recent years would be “highly likely” to trigger the plan’s liquidation provision.
While the state would be “legally insulated from direct financial liability,” there are other implications worth considering, Krause wrote. Introducing such a volatile form of collateral into a municipal finance model challenges the principles of transparency, predictability, and stability that this category of financing has historically emphasized, he said. Shielding the state from financial liability doesn’t eliminate reputational risks, he said.
“While the bond may serve as a proof of concept for integrating digital assets into structured finance, it is not well suited as a general-purpose public finance tool,” he concluded. “Its primary significance lies in highlighting the challenges of adapting traditional financial frameworks to highly volatile digital assets.”
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Steven Porter can be reached at [email protected]. Follow him @reporterporter.
Source: Original Article
