3 trillion dollars. That’s the extent of the opportunity bitcoin CFOs see in digital credit, a fast-growing class of bitcoin-backed debt instruments designed to generate returns on bitcoin holdings.
The market has already grown to about $10 billion in less than a year, participants say.
“What we’re seeing with digital credit right now is exponential adoption,” said Matt Cole, Chairman and CEO of Strive, during a panel discussion at the ongoing Consensus Miami on the evolution of Bitcoin Treasury companies.
“We’re only about $10 billion in adoption in less than a year, and after the launch of Strive and outside of the bitcoin ETFs, it’s the second fastest product launch in capital markets history.”
Cole added that the global credit market is worth $300 trillion, and bitcoin-backed credit capturing 1% of that would represent $3 trillion in demand. “I don’t think it’s crazy,” he said.
Digital credit is a new type of income-generating security backed by bitcoin, designed to let investors earn returns while reducing exposure to bitcoin’s price fluctuations. The concept borrows from traditional credit markets, but instead of being backed by a company’s revenue or cash flow, the debt backed by bitcoin is held on the balance sheet.
These instruments are typically structured as perpetual preferred shares, meaning they pay a regular rate of return with no fixed repayment date. Strategy, the world’s largest publicly traded bitcoin holding company, pioneered the category last year and paved the way for others. Strive was the second public issuer of digital credit with a product called SATA.
Strive is not the only one optimistic about digital credit. In the same panel, Katherine Dowling, president of the Bitcoin Standard Treasury Company, which is preparing to bring about 30,000 bitcoin on its balance sheet, said her company is actively looking at digital credit as the next step.
“We will also look at digital credit,” Dowling said. “I think it’s hugely important.” She noted that her company’s CIO brings a structured financial background to evaluating these products, and that the company will look at different product offerings to meet different people’s needs.
“So you have to strike that balance and listen to what the market wants and also see what the market can bear and offer you,” she said.
Amanda Fabiano, COO of Nakamoto, said her company saw the structured credit trend early and built a fund on top of it, giving institutional investors access to digital credit in a package that works for everyone, including those who can’t buy the instruments outright.
Nakamoto does not have its own preferred stock product and is still considering whether it makes sense given its structure as an operating company with a treasury underneath, she explained.
“I think there will be additional treasury companies issuing these and we will assess which ones go into the fund and which ones don’t,” Fabiano said. Early this year, Nakamoto bought BTC Inc. and UTXO Management, a firm that manages Bitcoin investments and advisory for 210k Capital, LP.
Speaking of additional treasury companies entering the space, Kwasi Kwarteng, executive chairman of Stack and former UK Chancellor of the Exchequer, said the scope for growth is huge. There are about 200 bitcoin treasury companies, he said, citing Blockstream CEO Adam Back, compared to 5,000 banks in the US alone.
“If bitcoin becomes a global financial currency, which I think it will, there is room for many more bitcoin finance companies,” he said, framing the digital credit option in the panel’s starkest terms.
“It’s a binary choice,” Kwarteng said. “Either you think bitcoin is going to the moon, or you think it’s a Ponzi scheme. There’s no middle ground.”
For those in the first camp, the prize is not incremental.
Kwarteng explained that one percent of the $300 trillion global credit market would represent about $3 trillion, nearly double bitcoin’s current market cap of about $2 trillion.
“You’re going to have digital credit, you’re going to have the full spectrum of possibilities. You’re essentially going to create or recreate the financial system, the global financial system, based on bitcoin,” he noted.
