3 billion dollars. That’s the scale of the opportunity bitcoin treasury executives see in digital credit, a rapidly growing class of bitcoin-backed debt instruments designed to generate returns on bitcoin holdings.
According to participants, the market has already grown to about $10 billion in less than a year.
“What we’re seeing with digital credit right now is exponential adoption,” said Matt Cole, president and CEO of Strive, during a panel discussion at the ongoing Consensus Miami on the evolution of Bitcoin Treasury companies.
“We’re close to $10 billion of adoption in less than a year, and after the launch of Strive and outside of bitcoin ETFs, that’s the second-fastest product launch in the history of the capital markets.”
Cole added that the global credit market is worth $300 trillion, and bitcoin-backed credit capturing 1% of that figure 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 exposure to bitcoin price swings. The concept borrows from traditional credit markets, but instead of being backed by a company’s earnings or cash flows, the debt is backed by bitcoins listed on the balance sheet.
These instruments are typically structured as perpetual preferred shares, meaning they pay a regular return without a fixed redemption date. Strategy, the world’s largest publicly traded bitcoin holding company, pioneered the 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 the only one optimistic about digital credit. On the same panel, Katherine Dowling, president of Bitcoin Standard Treasury Company, which is preparing to add approximately 30,000 bitcoins to its balance sheet, said her company is actively considering digital credit as the next step.
“We will also look at digital credit,” Dowling said. “I think it’s tremendously important.” He noted that his company’s CIO brings structured finance expertise to evaluating 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 offer,” he said.
Amanda Fabiano, chief operating officer at Nakamoto, said her firm saw the structured credit trend early on and built a fund around it, giving institutional investors access to digital credit in a wrapper that works for everyone, including those who can’t buy the instruments directly.
Nakamoto does not have its own preferred stock product and is still weighing whether having one makes sense given its structure as an operating company with an underlying treasury, he explained.
“I think there will be additional treasury companies that issue them, and we will evaluate which ones go into the fund and which ones don’t,” Fabiano said. Earlier this year, Nakamoto acquired BTC Inc. and UTXO Management, a company that manages Bitcoin investments and advisory for 210k Capital, LP.
Speaking of additional treasury companies entering the space, Kwasi Kwarteng, CEO of Stack and former UK Chancellor of the Exchequer, said the scope for growth is huge. There are approximately 200 bitcoin treasury companies, he said, citing Blockstream CEO Adam Back, compared to 5,000 banks in the United States alone.
“If bitcoin becomes a global financial currency, which I think it will, there is room for many more bitcoin treasury companies,” he said, framing the digital credit opportunity in the panel’s starkest terms.
“It’s a binary choice,” Kwarteng said. “Either you believe Bitcoin will go to the moon or you believe it is a Ponzi scheme. There is 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 approximately $3 trillion, almost double bitcoin’s current market capitalization of around $2 trillion.
“You will have digital credit, you will have the full range of opportunities. Basically, you are going to create or recreate the financial system, the global financial system, based on bitcoin,” he said.
