A bitcoin denominated bond, which its providers say is the first of its kind has been launched.
The bond is from Argento Access, a Luxembourg registered securitisation company which helps asset managers to package their assets into easily purchasable investment notes, and cryptocurrency exchange London Block Exchange (LBX).
The bond settles in bitcoin, is priced in bitcoin, pays monthly coupons in bitcoin, redeems in bitcoin, and has no traditional ‘fiat’ currency exposure anywhere in the structure. Fiat currency is that recognised by governments as legal tender, such as the Dollar and Sterling, is backed by that government and not by a commodity, such as gold.
The bond is available in a variety of durations, each of which has been allocated an International Securities Identification Number (ISIN – the code that uniquely identifies a specific securities issue) by international central securities depository Clearstream.
This means the bonds can be looked up on a Bloomberg terminal and Argento says this is the first time a cryptocurrency product has ever been allocated such a code. The notes are exclusively traded via LBX Trading and are custodied by an FCA regulated custodian in London. The register of noteholders is maintained on the blockchain.
The bonds can be properly included in all company accounts worldwide, whereas some countries’ accounting practices forbid putting raw bitcoin on a balance sheet.
The durations are named to appeal to the digital asset community: “FOMO”, “HODL”, “LAMBO”, and “MOON”. Capacity for each series is strictly limited to 10,000 bitcoins.
For the uninitiated, cryptocurrency has a jargon which includes FOMO (Fear of Missing Out), HODL (Hold on for Dear Life) LAMBO (short for Lamborgini, reference to getting rich), MOOM ( referring to a price going up in astronomical levels).
Phil Millo, manager at Argento said: “We are thrilled to have structured and produced the world’s first institutional grade bitcoin-denominated financial product. The large investment banks really dropped the ball on this one.”
Benjamin Dives, chief executive officer of LBX said: “This is an excellent product for people who currently hold bitcoin and aren’t planning to sell over the next few years — the so-called ‘HODLers’. Now, for the first time, they have an institutional grade way of making their wallets grow without exposing their bitcoin to the swings of the traditional ‘fiat’ currency markets.”
Sarah Coles, Personal Finance Analyst at Hargreaves Lansdown says: “There has been plenty of talk about bitcoin bonds for the past couple of years, and experiments with institutional lending in bitcoin. There are also countries said to be interested in launching a bitcoin bond – including Afghanistan.
“Investors normally invest in bonds because they offer less risk than equities, they deliver a reliable income, and you get your money back at the end. If your bond is denominated in a volatile currency, unless all your outgoings are in that currency, you lose these benefits: the value of the bonds you hold, and the income they return, fluctuates wildly.”
Coles warns “Bitcoin has no backing or guarantees at all – so it doesn’t have any intrinsic value. As a result, its price is overwhelmingly driven by speculation, so it has had a dramatic and turbulent history. It’s also an immature currency, so there’s no way of knowing how it will be priced in future.
“Bitcoin fans will highlight strong growth in 2019, but given that it had fallen 40% in the last two months of 2018, they’d be hard pushed to convince anyone the days of volatility were behind it.”
Coles says of course there will still be people who want to join the cyptocurrency fad, but she advises: “If you’re keen, it’s sensible only to do so with money you can afford to lose, and regularly take profits to limit your exposure.”
Further reading: ISA for cryptocurrency exposure – is it time to invest?