Latest news with #BitBonds
Forbes
22-04-2025
- Business
- Forbes
BitBonds: A New Take On Treasury Bonds To Tackle The U.S. Debt Crisis
Bitcoin vs. the Dollar: Visual equation with $100 bills, Bitcoin symbol, and question mark on dark ... More blue background. In a novel fusion of tradition and innovation, a number of economists, Bitcoin advocates, and financial insiders are rallying behind a proposal to reshape U.S. fiscal policy through the issuance of what the Bitcoin Policy Institute (BPI) calls Bitcoin-Enhanced Treasury Bonds—also referred to as BitBonds or ₿ Bonds. First outlined in a white paper by Andrew Hohns and Matthew Pines, and supported by a wide range of policy advisors and investors, BitBonds promise a tantalizing trifecta: fiscal relief, strategic asset accumulation, and wealth-building for everyday Americans. This isn't just economic theory. On March 6, 2025, President Donald J. Trump issued an Executive Order officially designating Bitcoin as a strategic reserve asset—"digital gold"—and established the U.S. Strategic Bitcoin Reserve. The Executive Order instructed the Secretaries of Treasury and Commerce to explore budget-neutral ways to acquire Bitcoin. The BitBonds proposal is, in the words of Hohns, "a direct implementation of this directive.' The U.S. faces a staggering fiscal cliff: $9.3 trillion of federal debt is set to mature within the next 12 months, and over $14 trillion within three years. Refinancing that debt at prevailing market rates (around 4.5%) threatens to deepen the national deficit and strain taxpayers. 'The refinancing wall is real,' explains Hohns, CEO of Battery Finance and co-author of the proposal. 'At today's rates, the Treasury would spend roughly $90 billion annually in interest on $2 trillion of bonds. But by issuing BitBonds with a 1% coupon, the government could reduce that burden to $20 billion—saving $70 billion per year.' Over a decade, that adds up to $700 billion in nominal savings, with a present value of $554.4 billion—even after accounting for $200 billion allocated to Bitcoin purchases. VanEck's Matthew Sigel also sees BitBonds as viable, expressing measured but positive support for the idea via X. He called the structure 'an aligned solution for mismatched incentives,' noting it could help the Treasury lower borrowing costs while offering investors asymmetric upside tied to Bitcoin. Sigel emphasized that even in flat BTC scenarios, low-coupon BitBonds could save the government billions in interest, while higher Bitcoin growth could unlock substantial shared gains. Still, he acknowledged trade-offs, including investor exposure to downside risk and potential issuance complexity. Each BitBond functions like a standard 10-year Treasury bond but with a twist: 90% of the funds go to traditional government expenditures, while 10% is used to purchase Bitcoin for the Strategic Reserve. Investors receive: For the first 4.5% annualized return (matching today's standard 10-year bond yield), investors receive 100% of the Bitcoin upside. Any gains beyond that are split 50/50 between the investor and the U.S. government. Importantly, principal is fully protected. Even if Bitcoin's value falls to zero, bondholders still receive their $100 face value plus interest at maturity. 'This asymmetric structure is elegant,' said Hohns. 'The government wins from interest savings even if Bitcoin goes nowhere. But if Bitcoin rises, both sides benefit. And historically, it has outperformed nearly every other asset over long time horizons.' The BitBonds proposal arrives at a moment when blockchain innovation is increasingly shaping fiscal discourse in Washington. Elon Musk recently suggested the U.S. Treasury should be 'put on the blockchain' to eliminate fraudulent payments and improve transparency. But not all crypto proponents are convinced. In a sharply worded Fortune op-ed, blockchain educator and ex-Goldman Sachs analyst Nic Puckrin cautioned against rushing into full-scale Treasury digitization: 'If anyone should support the idea of a U.S. Treasury on the blockchain, it's me … But moving the entire U.S. Treasury onto the blockchain right now would be anything short of a disaster,' he wrote, citing cybersecurity, scale, and national security risks. This is where BitBonds draw a clear line: they're not about putting the entire federal financial system on-chain but about harnessing Bitcoin's asymmetric potential within a traditional bond structure. Unlike the Musk-led vision, BitBonds do not expose sensitive government transactions to public view, nor do they rely on immature blockchain infrastructure to support trillions in transactional volume. Instead, they offer a measured, pilot-ready solution with clear upside and conservative risk exposure. Beyond institutional buyers, BitBonds are designed with the American household in mind. The white paper proposes that both interest and Bitcoin-linked gains be tax-exempt, mirroring the treatment of municipal bonds. This would create a powerful, risk-adjusted savings tool for retirement, education, or general wealth-building. 'If 132 million American households each invested $3,025,' the authors estimate, '20% of the $2 trillion BitBond issuance could be absorbed by domestic retail investors.' Even in a conservative scenario where Bitcoin grows at just 30% a year (its 10th percentile historical average) an investor could earn nearly 7% annually. If Bitcoin performs closer to its typical past rates, returns could climb to over 17% per year. And because these earnings would be tax-free, the gains could be even more valuable for American families. The Bitcoin acquired through BitBonds would be held in the Strategic Bitcoin Reserve, established under the March 2025 Executive Order. It serves not only as a long-term hedge against inflation and monetary debasement, but also as a strategic asset to reduce dependence on foreign creditors. In a 10-year scenario with even modest Bitcoin performance (e.g., 37% CAGR), the government could retain $1.77 trillion in Bitcoin upside—enough to significantly reduce national debt. Under historical median scenarios, the upside could exceed $6 trillion. Brian Estes, CIO of who penned his own BitBond white paper, emphasized this intergenerational impact in an interview with Natalie Brunell: 'If you extend this out to 20 years, the government's share of bitcoin appreciation under BitBonds could defease the federal debt entirely,' he said. 'This isn't just smart economics. It's a once-in-a-lifetime opportunity.' While BitBonds present a compelling fiscal innovation, it is important to note potential drawbacks. Although BitBond investors are guaranteed their principal and a modest fixed return, they bear the full downside risk of Bitcoin's price fluctuations. As Estes cautioned, in bear market scenarios, a low-yield BitBond could lose between 20% to 46% of its value relative to opportunity cost or inflation—making it less attractive to risk-averse or income-focused investors. Investors would benefit from 100% of Bitcoin appreciation only until their total return reaches 4.5% annually. Beyond that threshold, gains are split with the government, limiting potential returns for those seeking full exposure to Bitcoin's long-term growth. BitBonds would require the Treasury to issue approximately 11% more debt to meet the same funding needs, since 10% of each bond's proceeds would be redirected toward Bitcoin purchases. While the structure would be budget-neutral, this higher gross issuance may raise political or fiscal optics concerns. Holding billions in Bitcoin at the federal level introduces novel custody, compliance, and cybersecurity challenges. Though the proposal includes multi-signature (aka multi-sig(, cold storage, and phased rollout, the learning curve and operational complexity are far from trivial. The hybrid nature of BitBonds (combining sovereign debt with a volatile digital asset) raises significant questions about how agencies like the SEC, IRS, and CFTC might classify and regulate them. Public perception may also skew skeptical, with some viewing the initiative as speculative or ideologically driven, despite its structured, budget-neutral design. Still, proponents argue that these risks are manageable and far outweighed by the asymmetric upside. As Sigel put it, 'Worst case: cheap funding. Best case: long-vol exposure to the hardest asset on Earth.' While the idea of a fully blockchain-based Treasury may still be a moonshot fraught with technical and strategic hurdles, BitBonds may offer a grounded and actionable alternative. They don't attempt to overhaul federal infrastructure overnight. Instead, they merge the time-tested reliability of U.S. sovereign debt with the exponential potential of Bitcoin. By lowering interest expenses, building a strategic national reserve, and creating tax-advantaged savings vehicles for families, BitBonds offer a pragmatic path toward fiscal modernization, monetary sovereignty, and intergenerational equity—all without imposing new burdens on American taxpayers. As debates rage on about the digital future of money and government, BitBonds might just prove to be the middle ground: not a full-scale digital revolution, but a smart tradfi evolution.
Forbes
05-04-2025
- Business
- Forbes
BitBonds: The $2 Trillion Idea That Could Slash The National Debt
Many technologies that change the world don't start that way—they start as toys. This makes them easy to dismiss when they first appear. History offers several examples: Before the Chinese used gunpowder for weapons, they used it for firecrackers. Before the Aztec learned from the Spanish how to leverage the wheel, they used it only for small playthings and figurines. And before the United States began building military-grade drones that revolutionized the battlefield, hobbyists used them for wildlife photography, FPV racing, and other forms of recreation. The point: Paradigm-shifting technologies exist all around us—but the paradigm doesn't shift without a little push. That push appears to be happening now with bitcoin. What started as 'magic internet money' for cypherpunks and online gamblers has become a force multiplier for financial planners, CEOs, and most recently, US policymakers. President Trump's establishment of a strategic bitcoin reserve last month is a case in point. The President's 'crypto executive order' marked a watershed moment for digital assets: where forward-thinking policymakers once saw bitcoin as a threat to the dollar, many now see it as a companion. Advocates like Senator Cynthia Lummis, for example, believe a strategic Bitcoin reserve could halve the national debt by 2045. But the strategic reserve is not the only bitcoin proposal aimed at strengthening the nation's finances. Even more provocative is the concept of bitcoin-blended bonds, or 'BitBonds.' Imagine a financial instrument that could reduce the Treasury's debt burden by hundreds of billions of dollars while giving investors risk-free exposure to the best-performing commodity of the last decade. This is the promise—and ambition—of BitBonds. Andrew Hohns, a PhD economist and the founder of investment firm Newmarket Capital, catapulted BitBonds to the center of bitcoin policy conversations in a March 11 presentation at the National Press Club. Dr. Hohns made the case that BitBonds, if properly structured, could substantially reduce the 10-year interest rate for US debt and put the country on firm financial footing—all while stocking the strategic bitcoin reserve at no additional expense to taxpayers. Here's how: BitBonds are like regular bonds in the sense that Treasury would allocate 90% of the bond to fund the government. But it would then use the remaining 10% of funds to purchase bitcoin. Upon maturity, investors would receive 100% of the bitcoin upside up to 4.5% of the total compounded return. After this benchmark is reached, investors would receive 50% of all remaining bitcoin upside. Meanwhile, the government would keep the other 50% of remaining bitcoin upside to supply the strategic bitcoin reserve. The concept of BitBonds takes cues from Michael Saylor's success in issuing convertible bonds to purchase bitcoin for Strategy's treasury. Saylor's bitcoin treasury company has routinely issued billions of dollars in corporate debt at a mindboggling 0% coupon rate. How? Because investors are not buying Strategy (formerly 'MicroStrategy') bonds to secure yield but to reap potential upside on the stock. These bonds are 'convertible' in the sense that they can be converted to stock in the future. The conversion process works as follows: If the Strategy stock increases by 55% after purchasing the Strategy bond, the investor has 'the option' to convert the bond into stock. This stock option built into the Strategy bond allows investors to reap the upside of bitcoin while assuming less risk than buying the digital asset directly. So long as Strategy doesn't default, investors are guaranteed to receive their full principal investment after the bond matures. With its convertible bonds, Strategy has engineered a low-risk way for investors to gain exposure to bitcoin. But the beauty of BitBonds is that investors could gain exposure to bitcoin in a way that is nearly risk-free altogether. When a BitBond reaches maturity, the government would return the full principal investment to BitBond purchasers—no matter bitcoin's performance. Investors could thereby gain significant exposure to bitcoin via BitBonds knowing full well that the government will return 100% of their initial investment. And they need not worry about default risk or corporate mismanagement since their investment is backed by the full faith and credit of the United States government. In the worst-case scenario, bitcoin goes to zero. While this scenario is extremely unlikely, investors would still be guaranteed to receive in return 100% of their initial investment. So with BitBonds, the only risk investors would assume is opportunity-cost risk. Both investors and the United States government could benefit in tremendous fashion from bitcoin-enhanced bonds. Not only could the Treasury use BitBonds to fortify the nation's bitcoin reserve in a 'budget-neutral' way, as prescribed by the President's executive order; it could also significantly lower the 10-year yield. That's because demand for BitBonds—if it's anything like demand for bitcoin-linked convertible bonds in the corporate world—is likely to be red-hot. And red-hot demand would allow the government to issue BitBonds at an interest rate much lower than the typical 10-year Treasury note. As a thought experiment, suppose the Treasury were able to issue $2 trillion in BitBonds at 1% interest. (This issuance would satisfy about 20% of Treasury's refinancing needs for 2025). The cost-savings for the government in this scenario could be unprecedented. Instead of financing debt at 4.5% interest (i.e., the typical yield for a 10-year Treasury note), the government could finance a significant portion of its debt at just 1% interest. This would translate to approximately $70 billion in savings annually, or $700 billion in savings over the next 10 years. If the government were to issue BitBonds each year, the total savings over the next two decades could significantly reduce the debt burden. According to Dr. Hohns, if bitcoin continues to grow at a strong rate, the bitcoin upside Treasury would reap from BitBonds 'could defease as much as $50.8 trillion of federal debt in 2045.' Dr. Hohns recently joined Matthew Pines, the executive director of the Bitcoin Policy Institute, in publishing a report that outlines the BitBonds concept in full. I reached out to Dr. Hohns to understand the inspiration behind bitcoin-blended bonds. 'In 1981, the US had $1 trillion of debt,' said Hohns. 'Now, 44 years later, we're at $37 trillion. As Lyn Alden brilliantly said, 'Nothing stops this train.'' But if anything could stop the debt train, Hohns believes it's BitBonds: 'Through bipartisan action on BitBonds, we can simultaneously lower the US interest expense, add bitcoin to the federal balance sheet, and share in the benefits of this savings technology with everyday American families. It's a win-win-win.' 'For the first time in my life,' said Hohns, 'I am excited and energized by the emergence of a credible solution to defease the US debt.' So what do lawmakers make of this idea? I reached out to Senator Cynthia Lummis to get her perspective: 'I'm currently reviewing the Bitcoin Policy Institute report to learn more about the BitBonds concept. It's great to finally have an administration that is open to considering new and innovative ideas like this.' Senator Lummis was key to mainstreaming the concept of a strategic bitcoin reserve, having introduced the first legislative proposal to put bitcoin on the nation's balance sheet in July 2024. Whether she embraces BitBonds could well determine if this bold new idea becomes reality.
Forbes
31-03-2025
- Business
- Forbes
Could Bitcoin-Based 'Bit Bonds' Build A Better America?
Bit Bonds would promise to integrate bitcoin into Treasury operations in the U.S. and offer a new ... More way of financing government debt. As the federal government has warmed up to bitcoin in the past few months, many are expecting that continued deregulation of digital assets will kickstart a new round of financial innovation. With it will come new ideas for how to weave bitcoin into the very fabric of the global financial system. One such idea is to use bitcoin to back government debt, colloquially called 'Bit Bonds.' Today, many Americans watch with alarm as U.S. debt levels eclipse historic records. Meanwhile, bitcoin offers a model for decentralized asset growth that operates independently of central-bank coordination or policy errors. Against that backdrop, a proposal to bundle low-yielding Treasury obligations with a strategic allocation to bitcoin has emerged as one of the most ambitious and perhaps transformative ideas in modern finance. Could a traditionally risk-free instrument could pair successfully with a digital commodity to produce a net benefit for both government and investors? Bit Bonds operate much like standard Treasuries at first glance. The issuer, who in this case would be the U.S. Treasury, releases bonds at a lower coupon rate than the current market average. Investors accept that smaller fixed payment because a portion of the bond proceeds is allocated to bitcoin, which may rise in purchasing power over the term. By doing so, the issuer saves billions of dollars in interest, and investors gain partial exposure to bitcoin's price. Bit Bonds tie a small fraction of each newly issued bond to a pool of bitcoin that is purchased at issuance. Each bond's principal remains due in full at maturity, and holders receive an extra payout proportional to bitcoin's price appreciation. If bitcoin fails to appreciate, those investors ultimately have a bond that pays only a nominal coupon – a disappointment by most measures, but still a secure baseline. If, on the other hand, bitcoin rises in purchasing power, as it has historically, the upside would be impressive. Even a normally conservative bond could deliver growth that might rival or surpass the stock market. This structure effectively combines a zero-coupon or low-coupon bond with an embedded call option on bitcoin, though the issuer conceals some of that complexity behind a straightforward redemption promise. Viewed this way, it's easy to see how investors might be drawn to Bit Bonds for the capital preservation it provides in worst-case scenarios, and for the potential windfall if bitcoin's historical trend continues. Traditional Treasuries, corporate bonds, or inflation-protected securities like TIPS deliver predictable returns. They generate interest that (one hopes) outpaces inflation, with minimal risk and volatility. In contrast, Bit Bonds come with a layered their principal is backed by the same government credit as a standard Treasury. They may only guarantee a low interest rate of perhaps 1 percent, but with the added bonus of exposure to bitcoin, whose price can easily double or halve in a matter of months. Over a decade, that volatility can produce dramatic gains or remain tepid, shifting the real yield anywhere from negligible to stellar. Some skeptics liken Bit Bonds to other commodity-linked debt instruments, such as gold-backed treasuries. Gold-centric proposals attract those seeking a hedge against currency debasement. They allow governments to borrow at a discount while ensuring that holders benefit if the metal rises. Bit Bonds purposefully incorporate more volatility – bitcoin can skyrocket or crater faster than gold ever could. The significance of that difference lies in the potential interest savings to the government. With gold, it's tough to entice bondholders to accept a near-zero yield, even with a gold upside. With bitcoin, the historical track record and fervent market interest suggest that some investors would accept a far lower coupon, translating into big savings for the issuer. That potential for lower interest expenses resonates strongly in public debt management. If the U.S. were to refinance even a fraction of its multi-trillion-dollar obligations at 1 or 2 percent, instead of the prevailing 4 or 5 percent, it could save tens of billions annually – money that could otherwise go toward paying down principal, shoring up entitlement programs, or funding crucial infrastructure. Here's how Bit Bonds could stack up relative to other fixed-income products: How Bit Bonds stack up against other fixed income products. Most people who buy bonds are looking for predictability. Bit Bonds provide a route to wealth protection by transforming a portion of a conservative holding into a high-upside play. In a typical balanced portfolio, bonds deliver predictable cash flow – crucial for pensions, retirees, and risk-averse institutions. Bit Bonds, by contrast, will not generate much immediate cash flow. Instead, they hold the promise of large gains if bitcoin outperforms, with downside protection. For many cautious investors, this arrangement could be a more palatable introduction to bitcoin than buying it outright. By securing the guarantee of repayment from the Treasury, the risk of total loss is removed. If bitcoin deflates, the bond still repays principal plus a small coupon. If bitcoin surges, the holder reaps a portion of that windfall. The U.S. government's debt profile has become a near-constant worry for budget hawks. Trillion-dollar deficits are no longer shocking, and interest expense alone is hovering around record levels. With the Federal Reserve's moves pushing rates higher, rolling over existing obligations gets expensive in a hurry. Bit Bonds offer one potential relief valve. By committing a slice of each new bond issuance to the Strategic Bitcoin Reserve, Treasury can entice global investors to accept lower coupons. Over the term of the bonds, that helps the government shrink its annual interest payments – a benefit that scales with issuance volume. Meanwhile, any appreciation in bitcoin that the government retains could be used to retire principal. Unlike gold, which historically appreciates slowly, bitcoin has often doubled or tripled in a single market cycle, making the payoff for government reserves potentially enormous. The structure works because of the asymmetry involved. The worst that can happen is that bitcoin doesn't rise – in which case the government ends up paying a lower coupon than a standard bond would require, but sees no large upside. Even then, that might still be a net positive if the interest saved on the coupon surpasses the lost investment in bitcoin. Seen in this light, the gamble is not purely a roll of the dice. Instead, it can be designed so the reduction in coupon payments offsets a mediocre or even negative performance from bitcoin. That doesn't mean the entire program is free of risk, but it undercuts the narrative that Bit Bonds would be reckless speculation. Traditional finance uses structured products all the time, pairing a conservative bond with a more aggressive asset or derivative. Bit Bonds simply bring that principle to a sovereign debt instrument. For individuals, such a bond could reshape how they view their savings. Historically, anyone wanting a shot at bitcoin-like upside would have to buy bitcoin outright, invest in bitcoin mining companies, or dabble in more volatile assets. That can be daunting for those wary of unregulated exchanges, self-custody responsibilities, and price crashes. A Bit Bond bypasses these hurdles by presenting the opportunity in a familiar format – a government security. This approach might appeal to a subset of investors who believe that bitcoin will continue to appreciate, but prefer having a nominal floor under their investment. The trade-off, of course, is that the bond's coupon is lower than what one would earn in a typical fixed-income market. Consider a bond with a face value of $100 and a 10-year maturity. The bond allocates $10 to bitcoin at the start, leaving $90 to fund government spending or repayment of other obligations. If bitcoin doubles over the period, that $10 becomes $20, and the holder might end up with a $110 total value in addition to a small coupon over time. If bitcoin rises 10-fold, that payoff grows dramatically. Conversely, if bitcoin stagnates, the holder might be left with only a marginally better return than a savings account. This possibility of high upside combined with baseline security has drawn comparisons to convertible bonds – a well-known hybrid that allows a holder to convert a bond into equity if a stock rallies above a certain threshold. Assumes 10% of the bond principal is allocated to bitcoin. The government and the bondholder split ... More any bitcoin gains 50–50. For example, if the $10 in BTC grows to $50, the total $40 gain is divided equally; the investor keeps $20 plus the original $10 allocated to BTC, yielding $130 at maturity when combined with $100 in principal. The 10-year total then adds the $10 of coupon payments (1% per year for a $100 face). Annual returns (IRRs) are approximate and assume holding to maturity. Scenarios involving large amounts of issuance, such as $2 trillion, shine a light on the broader policy implications. The interest savings on such a massive sum can approach $700 billion over 10 years, even accounting for the cost of buying the bitcoin. If bitcoin performs well, Treasury's retained share of the upside can further reduce debt levels in an almost self-financing mechanism. Government accountants, therefore, face a fascinating cost-benefit tradeoff. With a diminishing real yield on plain treasuries, a strategic pivot to Bit Bonds might even influence how investors worldwide view dollar-denominated debt. If enough global capital sees Bit Bonds as the best of both worlds – a U.S. credit guarantee plus bitcoin's potential – the demand could send ripple effects through the entire debt market, suppressing yields for non-Bit Bond Treasuries as well. From an institutional standpoint, Bit Bonds can serve as a risk-managed approach to bitcoin exposure. Pension funds, insurers, and endowments often want to explore alternative assets but feel constrained by regulations or perceived volatility. If the rating agencies and regulators classify Bit Bonds as risk-free or near risk-free because the principal is sovereign-backed, these institutions might be able to deploy significant capital into them. That would, of course, build momentum and further validate the idea. With every new investor, Bit Bonds gain liquidity, and their pricing becomes more transparent. Eventually, a robust market could form around them, complete with derivatives that strip out the bitcoin component or add leverage on top of it. At a time when the federal deficit soars into the trillions and consensus about fiscal restraint seems elusive, harnessing bitcoin's historical growth trajectory to alleviate interest burdens and chip away at the principal offers a disruptive idea that may prove too alluring for policymakers to ignore. If structured correctly, the government's downside remains limited to the capital allocated to bitcoin, and that downside is counterbalanced by the billions in interest savings. The upside, conversely, carries no explicit limit. If bitcoin grows another 5x or 10x in the coming decade, Treasury might gain a windfall that could reshape entitlement programs or invest in critical initiatives without resorting to higher taxes. For investors, Bit Bonds deliver a path to modestly participate in bitcoin without the usual risks of loss or custody challenges. Although a 1 percent coupon is meager, that nominal yield functions as a floor. Bondholders can benefit from the dynamic of an appreciating scarce asset, a proposition that resembles an embedded derivative. Even cautious investors might view that as a valuable diversification tool, sitting between the extremes of fiat savings and direct bitcoin speculation. While bitcoin will likely continue to spark intense debate, Bit Bonds encourage a pragmatic alignment between a recognized store of value and a government's quest to manage its liabilities. The Bit Bond concept opens a new frontier in public finance where sovereign wealth meets a neutral, internationally-recognized monetary medium. Whether that union truly alters America's fiscal destiny remains uncertain. But it's not hard to imagine that, in a decade or two, people might look back on Bit Bonds as a significant moment when the world's leading economic power took a fresh and potentially revolutionary approach to managing its debt in the age of digital money.
