As bitcoin has been trending for a while now, we decided to focus our interest in this leading cryptocurrency from a new angle and perspective. A lot of talks around bitcoin are about its price volatility, ETFs, future speculations, and past analytics. However, while SEC kept turning down bitcoin ETFs, Bloomberg, on the other hand, has added a new item to their terminal - the first and only bitcoin bond.
Now, that’s an exciting development in the crypto sphere following Facebook’s Libra announcements. Could this be a groundbreaking event for the entire crypto industry or is it a next step to push investors into this new emerging market of cryptocurrencies and digital asset transactions.
Phil Millo, is a serial entrepreneur, public speaker, and founder of Argento Access, which has launched the first bitcoin bond. Phil, along with Shahad Choudhury, also co-founded OpenBrix, a company aiming to revolutionise the property market.
Phil Millo agreed to have his first exclusive interview with Paulius Stankevicius about bitcoin bond. In this interview, we will cover more details about bitcoin bond, what it actually is, and how to invest in it.
Stankevicius: For starters, what is a bitcoin bond? And what are the differences between regular traditional bonds and the bitcoin bond?
Millo: These bitcoin bonds do exactly what they say on the packet: you put bitcoin in, you get a fixed amount of bitcoin back every month, and you get your original bitcoin back at the end. In that way they are very much like the traditional bonds you might buy from a bank, only based on a modern, digital asset. However the bitcoin bonds are totally different from all the dollar bonds offered in bitcoin, since with those you get a variable amount of bitcoin back based on the BTC/USD price.
Stankevicius: Any special notes to be considered before investing in bitcoin bond, such as regulations, taxation, other legal aspects?
Millo: Since the bitcoin bonds are completely ‘Zero Fiat’, there is very little regulation that applies. We can’t give tax advice, but typically any increase in bitcoin would only be taxable if there was also an increase in the fiat value, and even then only when it was sold.
Stankevicius: If I personally wanted to invest in bitcoin bond, can I call my brokerage firm and they would be able to place an order for me?
Millo: LBX Trading in London is the ‘Prime Broker’ for the bitcoin bonds which means that they are handling all of the incoming purchases and settlement. Go to lbxtrading.com/bitcoin-bond for more information.
Stankevicius: How difficult was it to get into Bloomberg terminal? Did you have to pass any special examination and fill tons of applications? Was the process smooth or difficult? How did you handle legislation and government policies?
Millo: Once Clearstream had issued the bonds with ISINs (unique security codes) these automatically fed into Bloomberg. It’s worth noting that you can’t actually buy the bonds through the Bloomberg terminal (yet), but you can certainly look them up!
Stankevicius: Are foreign investors from Asia, Africa, the Middle East, and other regions able to buy bitcoin bonds?
Millo: Yes -- they just have to onboard with LBX Trading.
Stankevicius: What are your expectations from China, keeping in mind that a lot of money is being moved from China to Europe and US through crypto, how does bitcoin bond come into play with all of this?
Millo: We are seeing a lot of interest from Asia in the 10 year bond which is the very longest duration offered. It would be quite hard to use the bitcoin bond as a mechanism to move money from China to Europe as the final redemption would be back to the same wallet used for subscription.
Stankevicius: What do you consider your competition?
Millo: This is the first properly constructed bitcoin bond that people can buy, so the main competition is really bitcoin holders not doing anything at all and leaving the bitcoin in their wallets! Having said that, there are a few other products that look similar, for example fiat bonds that settle in bitcoin, or unsecured bitcoin loans to some of the exchanges.
Stankevicius: If bitcoin holders is your competition what is the difference between holding bitcoin 10 years in your wallet than having invested in 10 year long bond? Does the bond give an extra return % to the investors?
Millo: That’s right, the bonds give an extra percentage return. The ten year bond which is the longest gives an extra 10% a year, so after ten years you have doubled your bitcoin. The shorter 18 month, three year, and five year bonds pay an extra 6.67%, 7%, and 8% a year respectively. The way it works is that you lock up your bitcoin for the duration of the bond, and then receive the annual return divided into equal monthly instalments, like bitcoin income.
Stankevicius: In case if bitcoin actually doesn’t succeed and price drops lower than initially invested amount, would that mean that you still have to give out returns to investors? And would it mean in that case your company had a negative balance sheet? How is the risk management observed in this case?
Millo: The beauty of these bonds is that they are actually denominated in bitcoin and there is zero fiat anywhere in the structure. This means that the bond holders don’t have any exposure to the dollar (or other fiat) value of bitcoin, and it makes no difference if that price goes up or down.
Stankevicius: What is your vision behind bitcoin bond?
Millo: A lot of people are saying that the bitcoin bond represents the end of the first wave of adoption, and is an important milestone in bitcoin becoming legitimate within financial services. We don’t disagree with any of that!
Stankevicius: Are you a true believer in bitcoin? Where do you see bitcoin going by the end of 2019 and in the next 2-3 years?
Millo: We are true believers in cryptocurrencies, and certainly in bitcoin. Within three years I think people will have started to get comfortable that bitcoin is an asset in its own right without reference to a dollar price. As once debated with a Finnish central banker on a panel who said that “All investors want returns” -- my response was “They think they do, but they don’t -- they just want what those returns let them buy!” I think he agreed with me.
Stankevicius: Do you believe bitcoin ETF will ever come out? If so, then when?
Millo: I’m not a huge fan of ETFs since they tend to introduce stock market volatility into otherwise non-correlating assets. But I’m sure there will be lots of bitcoin ETFs, if only to allow traditional portfolio managers to include what they think is bitcoin returns in their portfolios. This is not my vision for bitcoin.
Stankevicius: What is your opinion on alternative currencies and ethereum? Would ETH bond make sense?
Millo: I like a lot of the alternative major coins -- certainly ETH, but also XRP and ADA which is the Cardano coin. Will we soon be announcing bonds based on those? I couldn’t possibly comment!
To find out more information about bitcoin bond, please visit official LBX website at https://lbxtrading.com/bitcoin-bond.