New Hampshire’s new first-of-its-kind Bitcoin-backed US municipal bond is now one step closer to reality after being given a rating from Moody’s Investors Service on Tuesday. 

In a statement on Tuesday, Moody’s assigned New Hampshire’s Bitcoin bond project a provisional Ba2 rating, which falls within the “speculative grade” category and indicates the bonds will have substantial credit risk.

A ratings assessment could be seen as a key step for the proposed bond. Bond ratings offer a way for institutions to assess credit risk and guide decision-making. Some institutional investors have mandates allowing them only to invest in investment-grade assets.  

A provisional rating indicates that Moody’s has already reviewed all the necessary documents to give its verdict, but is waiting on some final legal documents to make the final judgment.

The next step is generally for the product to be priced before it enters the market, though this particular bond does not yet have an official launch date.

Moody’s Ba2 rating impacted by Bitcoin volatility

The Ba2 rating places this project one tier below investment-grade status, signaling to investors that it is a speculative investment. Moody’s cited Bitcoin’s volatility as a primary reason behind its risk rating.

“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 wrote.

Data indicates that Bitcoin’s volatility has been on a gradual decline over time, though it still remains above that of assets like gold and certain stock indexes.

“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 wrote in a report earlier this month. 

BTC volatility vs other assets. Source: S&P Global

New Hampshire signed off bond in November

The New Hampshire Business Finance Authority (BFA) approved the state’s municipal Bitcoin-backed bond project in November, claiming that it would become the first state in the world to issue such a project.

Related: US lawmakers publish crypto tax proposal without Bitcoin tax exemption

The BFA outlined that the project would kick off with $100 million worth of bonds, with the product enabling companies to borrow against overcollateralized Bitcoin.

BitGo Trust Company Inc. is serving as the custodian for the BTC collateral, while the project was designed by asset manager Wave Digital Assets in partnership with bond specialist Rosemawr Management.

The New Hampshire BFA said fees earned from 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.”

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