Known for being skeptical of cryptocurrencies, Fed may have indirectly invested in MicroStrategy’s Bitcoin Drive.
The US Federal Reserve (Fed) leadership is known to be skeptical of cryptocurrencies, but it was recently revealed that the central bank could ironically be one of the first to adopt the first junk bonds linked to bitcoin (BTC) through its investment in an exchange traded fund (ETF).
After last year’s pandemic outbreak, the Fed intervened in the markets, injecting money into exchange-traded funds, among others. The bank’s investment made it the fourth-largest owner of the crypto-linked Bloomberg Barclays High Yield Bond (JNK) ETF SPDR in late March, according to Bloomberg data.
On June 9, MicroStrategy offered $500 million in junk bonds to pave the way for its additional investments in BTC, attracting investors who seek more exposure to the cryptocurrency but cannot buy them directly for a variety of reasons.
ETFs are financial instruments that are traded on an exchange like stocks but track a specific market or asset like bitcoin. As about 0.01% of the Bloomberg Barclays High Yield Bond SPDR ETF is dedicated to MicroStrategy junk bonds, this technically means that the Fed, as long as it still holds the bonds, is facilitating the software company’s future investments in bitcoin.
In other words, taking into account Fed Chairman Jerome Powell’s statement last April when he said that bitcoin should be considered “a highly speculative asset”, this would mean that the US central bank contributed to speculation.
In addition, the iShares Broad USD High Yield Corporate Bond ETF (USHY) is supposedly another Fed holding company that also owns “a small slice” of MicroStrategy’s debt.
Commenting on MicroStrategy’s inclusion in the fund, Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence , said he was “surprised to see you there so early“, although “was a very small amount“.
“Fixed-income portfolio managers have a bit of discretion about which bonds they can have in the portfolio, so they can add a little potion before a possible index inclusion,” said Psarofagis.
Junk bond buyers must obtain a 6.125% coupon on their investment, which cannot be repaid in advance for the first three years.
“Bitcoin has arrived on Wall Street,” MicroStrategy CEO Michael Saylor told Bloomberg earlier this week.
“My mission is to open a channel between the [USD] 400 trillion ocean of conventional assets and the [USD] 1 trillion Bitcoin.”
That said, some market watchers say the bond doesn’t offer its buyers the same benefits as direct investments in the cryptocurrency.
“A bond has a fixed return, so you will never have the positive side of bitcoin, the issuer will have” said Christopher White, CEO of financial services firm ViableMkts , so investors who are bullish on the cryptocurrency “may well buy bitcoin. ”