Matthew Sigel, head of digital assets research at Vaneck, owns I proposed an introduction Bitbonds, a hybrid debt instrument that combines US property with Bitcoin (BTC) exposure as a new strategy to manage the government’s looming $14 trillion refinance requirements.
This concept is presented at the Strategic Bitcoin Reserve Summit and aims to address sovereign financing needs and inflation protection investors’ needs.
Bitbonds is made up of 10-year securities consisting of 90% traditional US Treasury exposure and 10% Bitcoin, with the BTC component being funded by bond sales revenue.
At maturity, investors will receive the full amount from the US Treasury. This will receive $90 on $100 bonds plus the value of your Bitcoin allocation.
Additionally, investors will earn 100% of Bitcoin benefits from yields until satisfaction reaches 4.5%. Governments and bonds divide profits beyond that threshold.
The structure aims to adjust the profits of bond investors increasingly seeking protection from dollar decline and asset inflation, with the Treasury requiring refinance at competitive rates.
Sigel said the proposal is “a matching solution for incentives of discrepancies.”
Investor Breakeven
According to Sigel’s forecast, Bitbonds investors’ break-even relies on fixed bond coupons and Bitcoin combined annual growth rate (CAGR).
For bonds with a 4% coupon, the Breakeven BTC CAGR is 0%. However, for lower versions, the break-even threshold is higher. 13.1% CAGR for 2% coupon bonds and 16.6% for 1% coupon bonds.
If the Bitcoin CAGR remains between 30% and 50%, the modeled returns will rise sharply across all coupon tiers, with investors’ profits reaching up to 282%.
Sigel said Bitbond would be a “convex bet” for investors who believe in Bitcoin, as the equipment offers asymmetrical upside-downs, while retaining a fundamental layer of risk-free returns. However, that structure means investors have the complete drawbacks of Bitcoin exposure.
A drop in coupon bonds can cause sudden negative returns in scenarios where BTC loses value. For example, a 1% coupon Bitbond loses between 20% and 46%, depending on the performance of Bitcoin.
Financial benefits
From the US government’s perspective, a central advantage of Bitbonds is its lower borrowing costs. Even if Bitcoin is modest or appreciated at all, the Treasury saves interest payments compared to traditional 4% fixed-rate bonds.
According to Sigel’s analysis, the government’s break-even point is around 2.6%. Issuing bonds with coupons below that level will reduce annual debt services and also save money on reduced flat or bitcoin scenarios.
Sigel predicted that without a rise in BTC, the government would not be able to save $13 billion on bond lives by issuing $100 billion in Bitbonds with a 1% coupon. If Bitcoin reaches a 30% CAGR, the same issue could potentially give you an additional value of over $40 billion, primarily from the profits of shared Bitcoin.
Sigel also pointed out that this approach creates a differentiated sovereign bond class, providing US asymmetric reverse-reverse exposure while reducing dollar-controlled obligations.
He added:
“BTC’s upside just sweetens the deal. Worst case: cheap financing. Best case: long exposure to the hardest assets on the planet.”
Government’s Breakeven BTC CAGR rises with higher bond coupons, reaching 14.3% with 3% coupon bit bonds and 16.3% with 4% coupon versions. In a disadvantaged BTC scenario, the Ministry of Finance loses value only if BTC issues high coupon bonds while performance is degraded.
Tradeoffs on issuance complexity and risk allocation
Despite the potential benefits, Vanek’s presentation acknowledges the structural drawbacks. Investors assume the shortcomings of Bitcoin without a complete reverse participation, and unless Bitcoin works very well, low-coupled bonds are not attractive.
Structureally, the Treasury will need to issue more debts to compensate for 10% of the revenue used to purchase Bitcoin. For every $100 billion in funding, an additional 11.1% will be required to offset the BTC allocation.
The proposal suggests possible design improvements, including negative side protection to protect investors from sharp BTC.
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