- BitBonds combine 90% Treasury bonds with 10% Bitcoin, aiming to hedge inflation and attract sovereign investors.
- Investors earn a 4.5% annual BTC return, and beyond that threshold, extra gains are shared 50/50 with the government.
- A 1% coupon BitBond could save the U.S. $13B on $100B debt while offering up to $40 billion in upside if Bitcoin grows 30% annually.
VanEck has proposed a financial instrument called BitBonds to help the US refinance its huge debt profile and boost Bitcoin exposure. This proposal was pitched at the Strategic Bitcoin Reserve Summit as a potential inflation hedge for investors and a solution to sovereign fund demands.
VanEck’s Sigel Unveils 90/10 Treasury-Bitcoin “BitBonds” Strategy
In an X post, VanEck digital asset research director Matthew Sigel explained BitBonds’s strategy. Under this strategy, 90% of the bond will consist of treasury debts, while BTC will complete the remaining 10%. In addition, Bitcoin’s part will be funded by proceeds from the sale. Per reports, the US debt figure amounts to a total of $14 trillion.
For clarity, a bond is a financial instrument in the form of a loan given to a bond holder by the investor. An investor who buys a bond provides cash flow to the bond issuer. At maturity, the issuer is obliged to repay the principal amount and any interest outlined in the bond.
Sigel clarified that BitBonds are designed to mature in ten years. Once it matures, the investors will receive 90% for a 100% investment plus the value of the Bitcoin purchased with the remaining $10. In addition, the investor will receive an annual BTC return of 4.5% on the Bitcoin bond investment. If this gain exceeds 4.5% annually, then additional profits are shared 50:50 between the government and the investor.
The VanEck director highlighted the potential upsides of the bond to both parties. Investors will get protection against inflation and asset debasement, alongside potential crypto returns. At the same time, the government will be able to access cheaper refinancing options.
He said:
The U.S. needs to refinance $14T in debt. Investors want protection from inflation + asset debasement. Enter BitBonds: 90% Treasury + 10% BTC, Full BTC upside until 4.5% annual return, 50/50 BTC upside split thereafter. An aligned solution for mismatched incentives.
BitBonds Offer Treasury Potential $13B Savings and BTC Upside
Sigel noted that BitBonds could be a cheaper refinancing alternative for the US government. If Bitcoin drops to zero, this strategy will save the treasury cash, provided the coupon issued is below 2.6%. In other words, if the Treasury can offer BitBonds at a coupon rate lower than 2.6%, it would pay less in interest over time, even if the Bitcoin allocation becomes worthless.
Per VanEck estimates, the government could save $13 billion from a $100 billion BitBond issued with a 1% coupon. If BTC records a 30% compound annual growth rate (CAGR), the return from the BTC profits could surpass $40 billion.
Treasury’s BitBond Strategy Carries Investor Risk
Even though the potential upside is promising, investors are left exposed if Bitcoin crashes. In a scenario where Bitcoin travels southbound, investors could suffer massive losses. Moreover, the low coupon means the bond’s attraction hinges on Bitcoin’s project growth. Notwithstanding, top voices at VanEck believe the strategy can be improved, especially considering the return potential. However, they admit that regulatory backing is required to proceed.
