Can Bitbonds Rescue the US Economy?
The US Debt Crisis: A Looming Threat
The United States faces substantial financial challenges, including a ballooning national debt of approximately $36.2 trillion and historically high interest rates on government bonds. The 10-year Treasury yield recently hovered around 4.3%, with the 30-year yield even higher. Refinancing debt issued at lower rates during the COVID-19 pandemic will significantly increase future interest burdens for taxpayers.
A Persistent Fiscal Imbalance
This fiscal deficit is a long-standing issue, with the government consistently spending more than it collects in revenue. Even during periods of economic strength, the government struggles to collect more than 20% of GDP in tax receipts. Political hurdles impede the implementation of stricter spending measures or increased production to address the imbalance.
Geopolitical Pressures and Unconventional Solutions
Intensified competition with China, particularly in areas like economic growth and AI development, adds to the pressure. China's influence over global supply chains further exacerbates the US's economic challenges, potentially influencing inflation through supply chain disruptions. These factors have driven the exploration of unconventional solutions.
Introducing Bitbonds: Bitcoin-Enhanced Treasury Bonds
A policy brief proposes Bitcoin-enhanced Treasury Bonds, or Bitbonds, as a potential solution. Bitbonds are similar to regular Treasury bonds, but a portion of the proceeds (e.g., 10%, though potentially as low as 1%) would be used to purchase Bitcoin. A portion of this Bitcoin would then be distributed to bondholders over the bond's lifetime, incorporating Bitcoin's potential appreciation into the bond's return profile.
Dual Benefits: Lower Interest Rates and Bitcoin's Potential
Bitbonds aim to increase demand for US debt by offering exposure to Bitcoin, potentially lowering interest rates the government has to pay. Bitcoin's historical price appreciation could help offset the national debt. Government involvement would also signal increased legitimacy and reduce the perceived risk associated with Bitcoin, potentially boosting its price further.
Mitigating Bitcoin Volatility for Investors
While Bitcoin’s volatility is inherent, the Bitbond structure aims to mitigate risk for investors. The principal investment is guaranteed, and the worst-case scenario is receiving the return of a standard Treasury bond. However, significant price appreciation of Bitcoin could increase overall returns for the bondholders.
A Phased Approach
Implementing Bitbonds requires a cautious approach. A pilot program is recommended to assess market reaction and effectiveness. Bitbonds are intended as a complementary tool, not a replacement, for existing financial mechanisms.
Codeum's Role: Codeum, a blockchain security and development platform, offers services such as smart contract audits, KYC verification, custom smart contract development, tokenomics and security consulting, and partnerships with launchpads to support the secure and successful implementation of innovative blockchain-based financial solutions like Bitbonds.