Bitbonds are starting to garner a bit more attention. With the focus that is now on crypto, would these sell?
Many believe that is highly likely.
Back in early March, President Trump signed an Executive Order establishing Bitcoin as part of the United States Strategic Reserve. Contained in that Order was for agencies to find budget neutral ways to add Bitcoin to the holdings.
Bitbonds are one idea that could make sense.
In this article we will discuss the situation the US Government faces and why Bitbonds could provide a partial solution.
The Benefits Of Bitbonds For The US Government
It is no secret the United States is carrying a high debt load. The major issue is the government doesn't pay the debt off. Actually, it just keeps adding to the burden by running deficits. This means the debt has to be refinanced.
Over the next 12 months, $9.3 trillion has to be rolled. This number jumps to $14 trillion if we look over a 3 year time horizon.
With interest rates high, this means paying out the market of 4.5%. When talking about numbers of this size, that adds up.
On $2 trillion, this amounts to $90 billion in interest payments each year.
The idea is to take the total debt being refinanced and fund a portion through Bitbonds. This would reduce the annual burden on the $2 trillion to just $20 billion.
Over the course of a decade, that is $700 billion in savings.
From a debt servicing standpoint, it makes a lot of sense.
But would anyone invest? In other words, is there a benefit to those buying the bonds.
BitBond - Debt Plus Appreciation
The idea is to combine the streaming of payments offered by debt along with the potential for upside as the underlying asset grows.
Bitbonds would pay a flat 1%. This is down from the 4.5% mentioned above. Like all bonds, the investor would get the money back at maturity.
Of course, if this is where it stopped, the appeal is none. Anyone can figure out 4.5% is better than 1%, especially with the same risk.
Bitbonds goes one step further. The 4.5% return is guaranteed at maturity, through a Bitcoin payout. All of the gains (100%) go to the bondholder, up to the 4.5% level. After that, the split is 50/50 between the bond holds and government.
This means the returns could be significantly higher. Over the course of a 5 or 10 year bond, based upon the history of BTC, we could see double digit returns for each party.
The downside risk is also minimize since the principal is paid out the same as US Treasuries. Bitcoin only becomes a part of the equation in the interest payouts.
Financial Innovation
Cryptocurrency is opening up a world of financial innovation. Tokenization is taking asset classes and going to put them on blockchain. This will allow for the rapid transfer and swapping of assets. This is on top of transparency which is not always present, especially when governments are involved.
Bitcoin has done well to generate wealth over the past decade. Will it continue? As they say, the past does not equal the future. However, if we look at Bitcoin from a supply and demand perspective, innovation along these lines would ensure the price of Bitcoin heads higher.
Effectively, this is setting the US Government up to be a HODLer. If the Bitcoin is purchased, but not sold, the amount available on market will decline. This is likely if other countries follow a similar pattern.
The fact we are dealing with the digital world means that wealth is changing. We saw this with the advent of the Internet which propelled Amazon, Google, and Meta to valuations of more than a trillion dollars.
As we know, technology is only advancing at an even greater pace. The numbers will only get bigger as time passes.
It is time the US Government address its debt problem and innovation could really aid in the process.
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Potential typo?
$90 Billion?
Good article on bitbonds and tokenization of real world assets.
I see it has already been commented on, but you likely meant $90 billion.
Do you think that HIVE can/will be involved with this? VSC is booting up and will bring Smart Contracts needed for tokenizing RWA I would imagine. You talked quite a lot in the past about bonds on HIVE backed by long term locked HBD. Do you still think that would be good to implement here?
Or could we do something like you write in this piece? If somehow Smart Contracts on HIVE could buy T bonds/bills yielding over 4% maybe in combination HBD (currently yielding 15%), then we could outdo bitbonds by paying 6% or more, depending on the bond/HBD ratio in the fund. The Bitcoin part of bitbonds that you describe could be a combo of Bitcoin and HIVE in our version.
Do you have ideas for tokenization that we could/should do here on HIVE once we get Smart Contracts? If this is the future, we should be players in this!
The issue with tokenization of assets is custody. How holds the bonds (or gold, real estate, or Bitcoin)? To take this from a crypto purist perspective, it is a problem.
To answer the question, sure VSC could be used for it. A firm could establish that using the smart contracts like is being done on some of the EVMs.
Hive Bonds was designed to be a base layer but it could be layer 2. VSC is looking at implementing some of it in the sense with staked transferrable HBD. That was one of the goals of Hive Bonds, to get the HBD locked into savings (or time vaults) a way to be used as collateral.
VSC could then sent up a lending application on top used the staked HBD as collateral. The steam of payments are known although the time lock mechanism is still required. That could be built, I imagine, on VSC.
Maybe @vaultec can jump in and answer this.
Thanks for your thoughts. VSC will provide new functionality around here and we'll see what people do with it.
I see Bitbond yielding a good ROI especially it it's first four years. Mr Trump will do all possible thing to soar the price of BTC ahead of maturity date.
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Bitbonds is a completely new concept for me to explore and I am lucky to find this valuable informative blog post.
Interesting read! How realistic do you think Bitbonds are as a tool for government adoption of crypto without creating financial risk?"
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