Bitcoin enters the public debt market, and Moody's issues the world's first crypto-backed bond rating.

Title: “Bitcoin Enters the Public Debt Market, as Moody’s Issues the First Global Credit Rating for a Crypto-Backed Bond”

Author: Sanqing

Source:

Repost: Mars Finance

On March 31, Moody’s Ratings assigned a provisional credit rating to a bond backed by Bitcoin that the New Hampshire BFA plans to issue. The rating was Ba2. This marks the first time in the history of traditional rating agencies that they have conducted a credit assessment of a Bitcoin-collateralized municipal bond.

What is this bond

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

The bond is structured by Wave Digital Assets. Rosemawr Management serves as the investment manager. Legal services are provided by law firm Orrick. Fees earned by the New Hampshire BFA from the transaction will be used to establish the “Bitcoin Economic Development Fund.”

The core of the bond structure is that it does not depend on cash flows from any entity. Instead, it is directly repaid through liquidation of the Bitcoin collateral. The Bitcoin collateral is held in custody by BitGo Trust Company, Inc., stored in regulated cold storage.

When the borrower needs to pay interest or repay principal, the collateral will be liquidated and converted into cash to cover the expenses. The bond also includes a term that is relatively favorable to holders: if the holder of the A-2 series sees that the Bitcoin price at maturity is higher than on the pricing date, they have the right to receive an additional BTC revenue share after full principal and interest repayment.

Compared to Bitcoin lending tools on platforms like Coinbase, the most significant aspect of this bond is that it provides cryptocurrency with its first opportunity to access public debt markets for financing. Borrowers no longer rely on private loans from centralized platforms; instead, they can leverage institutional funds at large scale and low cost through publicly issued bonds with traditional credit ratings, within a compliant framework.

How institutions assess Bitcoin risk

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

To hedge against price fluctuations, the issuance structure introduces an overcollateralization requirement of 1.6 times, meaning the value of the Bitcoin collateral must always remain above 160% of the debt exposure.

Once the collateral ratio drops to a trigger point of 1.4 times (i.e., the LTV deteriorates to about 71%), a mandatory full redemption mechanism is triggered. The bond is accelerated, and Bitcoin is liquidated to repay.

In other words: borrowing $100 requires collateral of at least $160 worth of Bitcoin. If the collateral value falls below $140, the system triggers forced repayment, the bond matures early, and Bitcoin is sold to cover the repayment.

For conservatism, Moody’s used an advance rate of 72% and a shorter liquidation window to simulate an extreme scenario where Bitcoin prices drop approximately 28% from the pricing date. The tests showed that with 1.6x initial overcollateralization and the 1.4x trigger, sufficient protection remains, supporting the Ba2 rating.

These parameters are quite conservative. For an asset with a history of drawdowns exceeding 50%, such conservatism is likely a prerequisite for Moody’s to assign a rating.

Another notable detail is that although this bond is issued under the name of the New Hampshire BFA, it has no connection to the state’s public credit. Moody’s explicitly states in its report that no public funds from the state of New Hampshire may be used to repay this bond.

Structurally, the issuer acts as a “conduit issuer,” providing issuance channels and nominal backing but not assuming any credit backstop responsibilities.

This structure is common in traditional municipal bonds, often used for financing special projects such as healthcare and education.

Why this transaction is important

Understanding the historical significance of this bond requires viewing it within a broader context.

In recent years, institutional attitudes toward Bitcoin have evolved through three phases: from outright rejection, to holding Bitcoin as an asset (corporate Bitcoin reserves), and then to using Bitcoin as collateral for financing (pledging Bitcoin to obtain fiat loans). This bond marks the beginning of the fourth phase: Bitcoin as the underlying collateral for publicly rated debt instruments entering the traditional public finance market.

This development implies three things: it opens a window for institutional investors to indirectly hold Bitcoin exposure through compliant channels; it prompts Moody’s to develop rating methodologies for crypto collateral, encouraging other rating agencies to follow; and it demonstrates that under certain conditions, Bitcoin can serve as an interest-bearing asset, not just a zero-yield holding.

This bond is not an isolated event. Around the same time, the U.S. Department of Labor, under President Trump’s executive order, proposed expanding the range of digital assets in retirement portfolios; multiple states are considering legislation on “Bitcoin strategic reserves”; and New Hampshire is the first U.S. state to pass a law on crypto reserves.

While the Ba2 rating may seem like a “junk bond” level, this label can be misleading. In Moody’s rating scale, Ba2 is in the second tier of speculative grade, well above the bottom ratings (C/D).

Tesla only achieved investment-grade ratings from S&P and Moody’s in 2022-2023; Ford remains in Moody’s speculative grade (Ba1) and only barely maintains the lowest investment-grade tier in S&P, with a negative outlook. This does not prevent them from being key holdings for institutional investors.

Furthermore, the fact that this bond received a Ba2 rating rather than a lower one indicates that Moody’s stress tests, including the 1.6x overcollateralization and the mandatory liquidation mechanism, successfully passed relevant scenario simulations. Therefore, Ba2 reflects the conservative structural design rather than a simple negative view of Bitcoin assets.

Looking at historical precedents, the first mortgage-backed securities (MBS) and the first green bonds also started with similar ratings. As market experience and structural standards matured, their ratings generally improved. In this sense, Ba2 is merely a starting point.