Bitcoin-linked government bonds, Will they be a solution for 14 trillion dollar maturity?
Ahead of the maturity of a large-scale United States treasury bond, asset management firm VanEck proposed a new concept of bond product called 'BitBonds' that combines Bitcoin and traditional treasury bonds. This product aims to alleviate the United States fiscal burden while providing investors with opportunities for volatile returns.
VanEck's Head of Digital Asset Research Matthew Sigel revealed this idea through the cryptocurrency-focused media CryptoSlate on the 16th. BitBonds are a 10-year maturity product, with 90% of the assets invested in United States treasury bonds and the remaining 10% in Bitcoin. Upon maturity, investors will share a certain return based on Bitcoin performance in addition to the treasury bond principal. If the yield exceeds 4.5% per year, the excess is shared between the government and the investor.
Sigel assessed, “This method can effectively align the interests of investors looking to hedge against inflation and governments seeking to fund at low interest rates.” He analyzed through simulations that BitBonds could see a loss of up to 46% if Bitcoin falls, but could also achieve returns of over 280% if Bitcoin rises by 30~50% annually.
From the government’s standpoint, this product could be a means to lower interest burdens. For example, issuing $100 billion worth of BitBonds at a 1% interest rate could reduce interest costs by about $13 billion compared to traditional methods even without Bitcoin returns, and if BTC rises by over 30% annually, additional profits of over $40 billion could be expected.
However, this structure comes with high volatility and complexity. Investors must bear the losses from falling Bitcoin prices, and the government must use 10% of the total issued amount to secure Bitcoin, requiring approximately 11% additional bond issuance. This point requires thorough examination of financial risks along with institutional design.
It is uncertain whether such an experimental financial model can actually be implemented, but it is noteworthy as a proposal arising at the intersection of United States treasury restructuring and cryptocurrency's integration into the institutional framework.