BitBonds: How the U.S. government could buy Bitcoin

The Bitcoin Policy Institute has unveiled a new proposal, just in time for refinancing about $9.3 trillion of U.S. Treasury bonds that mature in the next twelve months.

The Bitcoin Policy Institute has a new proposal presented, just in time for refinancing about $9.3 trillion of U.S. government bonds that mature in the next twelve months. In their policy paper, they propose introducing a new type of government bond: the so-called BitBonds, bonds partially backed by Bitcoin.

The structure of these bonds blends a near-risk-free government bond with a low coupon and an embedded call option on Bitcoin. The idea is similar to convertible bonds, like Strategy's, where investors get protection against losses but can also benefit from a potential substantial rise in Bitcoin.

Some critics compare BitBonds to gold-backed government bonds. Such structures let governments borrow on favorable terms while investors benefit from a rising gold price. In the case of Bitcoin, the coin's significant upside could tempt investors to settle for a much lower interest rate. That could mean meaningful interest savings for the U.S. government.

Under the proposal, 90% of BitBond proceeds would go to regular government financing, while the remaining 10% would be invested in Bitcoin. This would not only reduce debt service but could also strategically help the U.S. build a Bitcoin reserve.

Suppose a BitBond has a face value of $100 and a ten-year term. At issuance, $10 would be invested in Bitcoin, while the remaining $90 funds government spending or pays down debt. If Bitcoin quadruples in that period, that $10 would be worth $50. The bondholder would then receive a total of $140 – in addition to the coupon that would be paid anyway.

In a large issue, say $2 trillion, the Bitcoin Policy Institute estimates the U.S. government could save about $70 billion in interest annually. In the long run, the rise in the Bitcoin reserve could even help lower the national debt—without extra taxes.

For investors who want less risk but still exposure to Bitcoin, such a bond could be attractive. Especially pension funds, insurers, and foundations—often limited in their investment options—could benefit from this hybrid investment form.

If credit rating agencies and regulators recognize BitBonds as (nearly) risk-free investments thanks to the government guarantee, these bodies might be willing to commit substantial capital to these new financial products.