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 Problem: A Looming Wall of Debt
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.
How BitBonds Work
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:
- A guaranteed 1% annual coupon in USD.
- A bitcoin-linked payout at maturity, providing potential upside if Bitcoin appreciates.
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.”
Blockchain, Transparency & Treasury: A Growing Debate
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.
Household Wealth and Public Buy-In
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.
A Sovereign Hedge and Fiscal Lifeline
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 Offthechain.Capital, 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.”
Potential Challenges and Trade-Offs
While BitBonds present a compelling fiscal innovation, it is important to note potential drawbacks.
1. The issue of volatility.
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.
2. The upside is capped.
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.
3. Implementation isn’t frictionless.
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.
4. Security and infrastructure.
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.
5. Political resistance and regulatory uncertainty.
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.”
A Bridge Between Eras
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.
Read the full article here
