A policy brief from the Bitcoin Policy Institute (BPI) proposes a novel financial instrument designed to address the United States’ growing national debt while incorporating Bitcoin into the nation’s strategic reserves. Titled “Bitcoin-Enhanced Treasury Bonds: An Idea Whose Time Has Come,” the paper suggests issuing up to $2 trillion in new bonds, with a portion of the proceeds allocated to purchasing Bitcoin.
This innovative approach aims to reduce the cost of servicing the national debt and create a new, potentially lucrative asset class for both the government and investors. The proposal arrives at a time when the U.S. faces significant refinancing challenges for trillions of dollars in maturing debt.
The Core Proposal: ₿ Bonds and a Strategic Bitcoin Reserve
The central idea involves the U.S. Treasury issuing a new type of sovereign debt instrument dubbed “₿ Bonds” or “BitBonds.” These bonds would function with a unique structure:
- Lower Coupon Rate: They would pay a significantly reduced annual interest rate of 1%, compared to the current ~4.5% rate on 10-year Treasury notes.
- Proceeds Allocation: 90% of the capital raised from each bond issuance would be used for standard government funding and operations.
- Bitcoin Acquisition: The remaining 10% of the proceeds would be used to acquire Bitcoin (BTC).
- Strategic Bitcoin Reserve (SBR): All purchased BTC would be held in a federal asset pool, a concept aligned with a recent executive order designating Bitcoin as “digital gold” and mandating the development of budget-neutral acquisition strategies.
The primary goal is to leverage the potential appreciation of Bitcoin to offset the lower interest payments on the bonds, ultimately saving taxpayers money.
Reducing Debt Costs And Building A Bitcoin Reserve
The authors of the brief present a detailed financial case for the proposal. By replacing a portion of traditional high-interest debt refinancing with these low-coupon ₿ Bonds, the government could achieve substantial savings.
Their calculations estimate annual savings of approximately $70 billion, or $700 billion over a decade, with a present value of around $554.4 billion. Crucially, the brief states that even if the price of Bitcoin remains completely static, the program would still result in net taxpayer savings of $354.4 billion after accounting for the initial $200 billion BTC purchase.
The investment’s upside becomes dramatically amplified if Bitcoin’s value increases. The paper presents models based on Bitcoin’s historical compound annual growth rates. For instance, at a 30% growth rate, the government’s share of the gains in the SBR could exceed $0.83 trillion in ten years.
A Win for Investors: Principal Protection and Potential Upside
For bondholders, the proposal is designed to be attractive and secure:
- Principal Protection: Investors receive their full principal back at maturity, backed by the full faith and credit of the U.S. government.
- Guaranteed Interest: A small but guaranteed 1% coupon payment is made annually.
- Bitcoin-Linked Payout: At maturity, investors also receive a variable payout linked to the performance of the Bitcoin acquired with their bond’s proceeds.
- Tax Advantages: To incentivize American households, the authors propose making both the coupon payments and the Bitcoin-linked gains tax-free for holders who keep the bonds until maturity.
This structure aims to democratize access to Bitcoin’s potential growth within a familiar and safe investment vehicle, making it particularly appealing to retail and institutional investors.
Addressing Risks and Implementation
The policy brief acknowledges the inherent volatility of Bitcoin but proposes several measures to mitigate associated risks.
- Limited Exposure: By capping the Bitcoin allocation at just 10% of the total bond proceeds, the program contains the potential impact of price swings.
- Secure Custody: The proposal mandates robust security measures for the SBR, including multi-signature wallets, cold storage for the bulk of reserves, and regular third-party security audits.
- Long-Term Horizon: The strategy is designed for a long-term holding period, noting that historical data shows holding periods longer than four years have consistently yielded positive returns for Bitcoin.
Phased Implementation Roadmap
The BPI outlines a cautious, three-phase approach to rolling out ₿ Bonds:
- Pilot Program (3–6 months): A small-scale issuance of $5–10 billion in bonds under existing executive authority to test market demand and operational logistics.
- Policy Development and Expansion (6–12 months): Formal legislation would be drafted, with broader market issuance and regulatory guidance provided by relevant agencies like the SEC and CFTC.
- Full Implementation (12–24 months): Integrating ₿ Bonds as a standard Treasury offering, potentially covering a significant portion of the federal government’s refinancing needs.
The report also highlights potential interest from a new class of international investors, including sovereign wealth funds and foreign central banks looking for regulated exposure to digital assets.
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Frequently Asked Questions
What are Bitcoin-Enhanced Treasury Bonds?
They are a proposed new type of U.S. government bond that pays a low interest rate but allocates a portion of its proceeds to buying Bitcoin. Investors receive their principal back plus a share of the Bitcoin's appreciation at maturity, offering a hybrid of safety and potential digital asset growth.
How does this proposal save taxpayer money?
By issuing bonds with a 1% interest rate instead of the current ~4.5% rate, the government drastically reduces its debt servicing costs. The savings are calculated to be in the hundreds of billions of dollars over a decade, even if the purchased Bitcoin does not increase in value.
What happens if the price of Bitcoin goes down?
The bond structure is designed to protect investors. Regardless of Bitcoin's price performance, bondholders are guaranteed to receive their full principal back at maturity, plus the small 1% annual coupon. The U.S. government would bear the loss on the Bitcoin portion of the investment.
How would the U.S. government securely store $200 billion in Bitcoin?
The proposal requires the establishment of a highly secure Strategic Bitcoin Reserve (SBR) using best-practice custody solutions. This would involve multi-signature wallets, the vast majority of funds held in offline cold storage, and frequent independent security audits.
Who is the target investor for these bonds?
The bonds are designed to appeal to a broad range of investors. They offer a safe, familiar government-backed instrument for retail investors, with the added tax-free potential of Bitcoin gains. They may also attract institutional and foreign investors seeking regulated digital asset exposure.
Is this proposal officially under consideration by the U.S. government?
As of now, this is a policy brief from a think tank, not an official government proposal. It serves as a detailed framework for policymakers to consider as they address the nation's debt management challenges.