by World Credit
Bitcoin paper, in the global financial market, is an unsecured promissory note issued on the Bitcoin Blockchain with a fixed maturity. In layman terms, it is an Bitcoin “IOU” sold on the Bitcoin Blockchain, Smart Contract Wallet, and Decentralized Exchange called Counterparty that can be bought and sold because its global community of buyers and sellers can have some degree of confidence that it can be successfully redeemed later for Bitcoin, XCP, or even more Bitcoin Credits (Tokens), based on their assessment of the creditworthiness of the issuing person or company.
Commercial paper is a money-market security issued (sold) by large corporations to obtain funds to meet short-term debt obligations (for example, payroll) and is backed only by an issuing bank or company promise to pay the face amount on the maturity date specified on the note. Old Commercial paper wasn’t back by collateral, and only firms with excellent credit ratings from a recognized credit rating agency are able to sell their commercial paper at a reasonable price. Bitcoin Paper is backed by the pledge of Bitcoin and can be discounted like Old Commercial paper that is usually sold at a discount from face value and generally carries lower interest repayment rates than bonds due to the shorter maturities of commercial paper. Typically, the longer the maturity on a note, the higher the interest rate the issuing institution pays. Bitcoin paper can be issued by any bitcoin holder. Interest rates fluctuate with the Bitcoin market conditions but are typically lower than banks’ rates.
As defined by United States law, commercial paper matures before nine months (270 days), and is only used to fund operating expenses or current assets (e.g., inventories and receivables) and not used for financing fixed assets, such as land, buildings, or machinery. By meeting these qualifications it may be issued without U.S. federal government regulation, that is, it need not be registered with the U.S. Securities and Exchange Commission. Commercial paper is a type of negotiable instrument, where the legal rights and obligations of involved parties are governed by Articles Three and Four of the Uniform Commercial Code, a set of non-federal business laws adopted by all 50 U.S. States except Louisiana.
At the end of 2009, more than 1,700 companies in the United States issued commercial paper. As of October 31, 2008, the U.S. Federal Reserve reported seasonally adjusted figures for the end of 2007: there was $1.7807 trillion in total outstanding commercial paper; $801.3 billion was “asset backed” and $979.4 billion was not; $162.7 billion of the latter was issued by non-financial corporations, and $816.7 billion was issued by financial corporations. Commercial credit (trade credit), in the form of promissory notes issued by corporations, has existed since at least the 19th century. For instance, Marcus Goldman, founder of Goldman Sachs, got his start trading commercial paper in New York in 1869.
Commercial paper – though a short-term obligation – is issued as part of a continuous significantly longer rolling program, which is either a number of years long (as in Europe), or open-ended (as in the U.S.). Because the continuous commercial paper program is much longer than the individual commercial paper in the program (which cannot be longer than 270 days), as commercial paper matures it is replaced with newly issued commercial paper for the remaining amount of the obligation.
There are two methods of issuing credit. The issuer can market the securities directly to a buy and hold investor such as most money market funds. Alternatively, it can sell the paper to a dealer, who then sells the paper in the market. The dealer market for commercial paper involves large securities firms and subsidiaries of bank holding companies. Most of these firms also are dealers in Treasury securities. Direct issuers of commercial paper usually are financial companies that have frequent and sizable borrowing needs and find it more economical to sell paper without the use of an intermediary. Which is a perfect fit for Bitcoin Paper. In the United States, direct issuers save a dealer fee of approximately 5 basis points, or 0.05% annualized, which translates to $50,000 on every $100 million outstanding. This saving compensates for the cost of maintaining a permanent sales staff to market the paper. Dealer fees tend to be lower outside the United States.
Commercial paper is a lower-cost alternative to a line of credit with a bank. Once a business becomes established, and builds a high credit rating, it is often cheaper to draw on a commercial paper than on a bank line of credit. Nevertheless, many companies still maintain bank lines of credit as a “backup”. Banks often charge fees for the amount of the line of the credit that does not have a balance, because under the capital regulatory regimes set out by the Basel Accords, banks must anticipate that such unused lines of credit will be drawn upon if a company gets into financial distress. They must therefore put aside equity capital to account for potential loan losses also on the currently unused part of lines of credit, and will usually charge a fee for the cost of this equity capital.
Advantages of Bitcoin commercial paper:
- Peer to Peer credit ratings fetch a lower cost of capital.
- Wide range of maturity provide more flexibility.
- It does not create any lien on asset of the company.
- Tradability of Commercial Paper provides investors with exit options.
Disadvantages of Bitcoin commercial paper:
- Its usage is limited to only blue orange chip companies.
- Issuances of Bitcoin paper bring down the bank credit limits.
- A high degree of control is exercised on issue of Bitcoin Paper.
- Stand-by credit (Smart Contract Credit) may become necessary