The first Bitcoin junk bond has just been released, and the Federal Reserve may have already bought a small amount

Original title: "Forced to slap in the face! The first Bitcoin junk bond has just been released and the Federal Reserve may have already bought a small amount"

Author: Li Dan

Both former Fed Chair and current U.S. Treasury Secretary Janet Yellen and her successor, current Fed Chair Jerome Powell, have criticized cryptocurrencies such as Bitcoin this year, arguing that they are highly volatile and inefficient. But the Fed may have inadvertently held a recently released Bitcoin-linked junk bond.

The junk bond was issued by MicroStrategy, a US business intelligence software giant, on Tuesday. It is the first junk bond to finance the purchase of Bitcoin. MicroStrategy originally planned to issue $400 million of the seven-year corporate bonds due in 2028. However, media reports revealed that MicroStrategy increased the issuance amount to $500 million because it had received about $1.6 billion in oversubscribed orders before the issuance was launched on Monday, and investors including a large number of hedge funds showed strong interest.

The bonds were ultimately issued at an annual coupon rate of 6.125%, at the lower end of the revised yield range of 6.125% to 6.25%. MicroStrategy had originally planned a range of 6.25% to 6.5%.

The media pointed out that since the Federal Reserve urgently expanded QE after the outbreak of the COVID-19 pandemic last year and relaxed standards to enter the market to buy junk bond ETFs, as of the end of March this year, the Federal Reserve has become the fourth largest holder of the junk bond ETF SPDR Bloomberg Barclays High Yield Bond ETF (JNK).

The bitcoin-related junk bonds issued by MicroStrategy on Tuesday accounted for about 0.01% of JNK. If the Fed has not liquidated JNK in the past two months, it means that the Fed has indirectly bought the first bitcoin junk bond in U.S. history, even if it is relatively small.

Bloomberg data shows that not only JNK, but also another junk bond ETF held by the Federal Reserve, iShares Broad USD High Yield Corporate Bond ETF (USHY), also holds a small amount of Microstrategy's Bitcoin junk bonds.

Analyst Athanasios Psarofagis commented that although the holding amount was small, he was surprised that these junk bond ETFs accepted Microstrategy's Bitcoin junk bonds so quickly.

MicroStrategy CEO Michael Saylor is a well-known Bitcoin bull in the business community and is considered the driving force behind Tesla's purchase of Bitcoin this year, as he previously encouraged Tesla CEO Musk to convert his US dollars into Bitcoin. On December 7 last year, MicroStrategy announced the issuance of $400 million in convertible bonds and invested the proceeds in Bitcoin.

Earlier, Wall Street reported that MicroStrategy disclosed earlier this week that due to the sharp drop in Bitcoin in the second quarter of this year, the company's currency holdings are expected to have an impairment loss of at least $284.5 million in the three months of the quarter. The company will transfer the 92,079 Bitcoins currently held to the newly established subsidiary MacroStrategy.

By the end of the U.S. stock market on Wednesday, the market value of the more than 90,000 bitcoins held by MicroStrategy exceeded $3.4 billion. After the market closed on Wednesday, the market price of bitcoin exceeded $37,000 after a surge of more than 10% that day, and the average purchase price of bitcoins held by MicroStrategy was $24,450 per coin. Based on this estimate, the current floating profit is more than 50%.

Earlier, the media commented that, like ETFs, corporate bonds are fair game for institutional investors. Now there is another way to test the waters of Bitcoin, buying seven-year MicroStrategy junk bonds. For a company with a rating like MicroStrategy, an interest rate slightly above 6% is a very considerable return in the junk bond market. However, it is still a small matter compared to Bitcoin, which has risen by more than 5,500% in the past seven years.