Bit Bonds: A Bold Combination of U.S. Government Bonds and Bitcoin

What Are Bit Bonds?

Bit Bonds are a new type of government bond in which a small portion of each issuance – typically 10% is used to purchase Bitcoin. The rest 90% functions as a standard U.S. Treasury bond, with full principal repayment at maturity and nominal coupon payments throughout the term.

What makes Bit Bonds unique is the additional payout linked to Bitcoin’s price. If the value of Bitcoin rises during the bond’s term, investors receive a payout proportional to that increase. If Bitcoin underperforms or remains flat, investors still receive their initial investment and modest interest. This structure effectively provides investors with the potential for profit without full exposure to the risks of the crypto market.

Value for Investors

This model can attract a wide range of investors. Conservative buyers get capital protection, while those with a higher risk tolerance see potential for significant returns. Historically, Bitcoin has outperformed the stock market. In fact, over a 16-year period, there has never been a time when someone who held Bitcoin for more than four years was at a loss regardless of the purchasing price.

For the U.S. government, the key advantage is significant cost savings. Traditional bonds often require interest rates of 4–5%. However, Bit Bonds could be issued with just 1% interest due to investor demand for Bitcoin exposure. This could translate into billions in interest savings. The best part is, it could be done without raising taxes or cutting spending, both of which are politically unpopular options.

Why Now?

The growing adoption of Bitcoin by governments, companies, and institutions has paved the way for broader institutional use. Clearer regulatory frameworks are also playing a role. As the U.S. national debt reaches historic levels of $36 trillion, alternative approaches like Bit Bonds offer an innovative path toward fiscal sustainability.

Why is national debt a central issue for the current administration? Because in 2024, for the first time, the cost of servicing the debt exceeded the U.S. defense budget. If this trend continues, by 2030, mandatory spending and interest costs will surpass total government revenues, placing America in a state of permanent deficit. This would lead to borrowing at ever-higher interest rates and could become a point of no return. America cannot afford to let that happen. Bit Bonds are one potential solution to help ease this burden.

At the heart of the concept is the decentralized nature of Bitcoin and its history of growth, offering a novel approach to managing state liabilities through asset appreciation. Bitcoin stands out as the only asset class with a fixed supply, limited to 21 million units.

The proposal aligns with the creation of Strategic Bitcoin Reserves – without additional costs to taxpayers. If successful, this reserve could strengthen America’s position as a leader in both global finance and digital assets.

How It Works

According to the proposal, a $2 trillion program – roughly 20% of the 2025 refinancing needs (in 2025 alone, $9 trillion in U.S. debt will mature) – would allocate $200 billion toward Bitcoin purchases, with the remaining $1.8 trillion funding standard government operations. These bonds would pay just 1% annual interest.

At maturity, investors would receive full principal, 1% annual interest, and a bonus tied to Bitcoin’s performance. Investors will keep 100% of earnings up to a certain threshold. For gains beyond that, they will share 50% of the profits. The government retains the rest, also profiting from Bitcoin’s growth.

Analyses suggest this structure could generate $70 billion in annual savings. Even if Bitcoin’s price remains unchanged (which is unlikely), the net savings – after deducting the cost of purchasing Bitcoin – would exceed $350 billion. If Bitcoin continues to grow at its historical average of 53% annually, the potential upside could be transformative.

By 2035, the government’s share of the Bitcoin reserve could reach $6.5 trillion – surpassing the current value of U.S. gold reserves.

Benefits for Investors

Bit Bonds aim to attract both retail and institutional investors. Issuers will allocate around 80% of the issuance to institutional and foreign buyers, while they will reserve 20% for American households.

For individuals, the proposal includes tax exemptions for both interest payments and Bitcoin-related gains. With expected participation from around 132 million U.S. households, the average investment per household could reach $3,025, offering a secure and potentially lucrative savings product.

For institutions, Bit Bonds provide a regulatory-compliant and lower-risk way to gain Bitcoin exposure while maintaining the stability and liquidity of traditional Treasury securities.

A New Fiscal Strategy

The Bit Bonds initiative has four main goals:

1. Reduce interest costs on national debt and provide immediate fiscal relief;
2. Build the U.S. Bitcoin Reserve without raising taxes;
3. Create a savings instrument that offers both security and growth potential for citizens;
4. Reduce national debt over the long term through asset appreciation, rather than through budget cuts or tax increases.

With this approach, Bit Bonds represent a visionary solution to long-term fiscal challenges. Rather than relying on austerity, this strategy leverages Bitcoin’s asymmetric upside to pay down the debt over time.

Conclusion

Bit Bonds represent one of the most ambitious financial innovations in recent decades. By combining national debt with digital assets that have high growth potential, the U.S. could reduce its debt servicing costs, accumulate strategic reserves, and offer a new method of saving and investing for both citizens and institutions.

If Bitcoin continues its historical growth trend, Bit Bonds could mark the beginning of a new era in public finance – one in which smart asset allocation, rather than austerity, becomes the foundation for long-term fiscal sustainability.