3 trillion dollars. That’s the scale of the opportunity that Bitcoin treasury officials see in digital credit, a rapidly growing class of Bitcoin-backed debt instruments designed to generate a return on Bitcoin holdings.
The market has already grown to about $10 billion in less than a year, participants say.
“What we’re seeing right now with digital credit is exponential adoption,” Matt Cole, Strive’s president and CEO, said during a panel discussion at the ongoing Consensus Miami on the evolution of Bitcoin cash companies.
“We have adopted approximately $10 billion in less than a year, and after the launch of Strive and outside of Bitcoin ETFs, this is the second-fastest product launch in the history of financial markets.”
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 allow investors to earn yield while reducing their exposure to Bitcoin price fluctuations. The concept borrows from traditional credit markets, but instead of being backed by a company’s revenue or cash flow, the debt is secured by bitcoin held on the balance sheet.
These instruments are typically structured as perpetual preferred shares, meaning they pay a regular return with no fixed redemption date. Strategy, the world’s largest publicly traded bitcoin wallet company, pioneered this category last year, paving the way for others. Strive was the second public issuer of digital credit, with a product called SATA.
Strive isn’t alone in being optimistic about digital credit. On the same panel, Katherine Dowling, president of Bitcoin Standard Treasury Company, which is preparing to put about 30,000 bitcoins on its balance sheet, said her company is actively considering digital credit as a next step.
“We will also look at the issue of digital credit,” Dowling said. “I think it’s extremely important.” She noted that her company’s CIO brings experience in structured finance to evaluate these products, and that the company will look at various product offerings to meet the needs of different people.
“So you have to create that balance and listen to what the market wants, and also see what the market can support and give you,” she said.
Amanda Fabiano, COO of Nakamoto, said her company spotted 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 purchase the instruments directly.
Nakamoto does not have its own preferred stock product and is still considering whether having one makes sense given its structure as an operating company with cash underneath, she explained.
“I think other Treasury companies will issue them, and we will evaluate which ones will go into the fund and which ones will not,” Fabiano said. Earlier this year, Nakamoto acquired BTC Inc. and UTXO Management, a Bitcoin investment management and advisory firm for 210k Capital, LP.
Speaking about the entry of new treasury companies into the space, Kwasi Kwarteng, executive chairman of Stack and former UK Chancellor of the Exchequer, said the growth opportunities were enormous. There are about 200 Bitcoin cash companies, he said, citing Adam Back, CEO of Blockstream, compared to 5,000 banks in the United States alone.
“If Bitcoin becomes a global financial currency, which I think it will, there will be room for a lot more Bitcoin cash companies,” he said, describing the digital credit opportunity 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 price is not progressive.
Kwarteng explained that one percent of the $300 trillion global credit market would be around $3 trillion, almost double Bitcoin’s current market capitalization of around $2 trillion.
“You’re going to have digital credit, you’re going to have the whole range of opportunities. You’re going to essentially create or recreate the financial system, the global financial system, based on bitcoin,” he noted.
