In early December, the US state of New Hampshire announced what it called the “world’s first bitcoin-backed municipal bond”. Munis — bond issues from American states and cities — are a $4.3tn market. They’re a minor part of a $47.8tn market for bonds in the US, dominated by Treasuries and corporate issues, but munis confer a special blessing. Any interest earned from a muni is exempt from federal income taxes, and some munis even allow the lender to escape state income taxes.

The New Hampshire bitcoin muni has cracked open the door to a new idea: companies that hold bitcoin can do something for local economic development. This could lure bitcoin treasury companies or more bitcoin miners up north, at a time when the state legislature is considering a ban on any local restrictions on server farms.

OK, I don't really understand what's going on here

Normally, private activity bonds are guaranteed by future revenues — from the company and ultimately the state. In New Hampshire’s bond, a company would post its bitcoin as collateral, to be held in trust. The state issues the bonds, essentially converting the private company’s bitcoin into a cash loan.

“It seems interesting,” says Daniel Garrett, assistant professor of finance at Wharton, “but it doesn’t make any immediate sense to me as to why it would be necessary.” Garrett, whose research looks into the development returns from municipal bonds, says he can’t figure out the economic or public value the state gets out of it.

Munis can be a creative way to get private companies to do things, but until we can figure out what the private companies will be doing, the question for New Hampshire’s new bond issue is the same as for most innovations around crypto: “Cool. But why?”