In a keynote speech at the Bitcoin For America event hosted by the Bitcoin Policy Institute (BPI) on March 11, Andrew Hohns, CEO of Newmarket Capital, presented a groundbreaking thought experiment for a new treasury instrument he refers to as “Bit Bonds.” This innovative proposal outlines a framework in which the United States could effectively lower borrowing costs, establish a significant national Bitcoin reserve, and potentially eliminate future debt obligations, all through a single bond issuance of up to $2 trillion.
Remarkably, this proposal arrives shortly after US President Donald Trump announced the establishment of a strategic Bitcoin reserve (SBR) via executive order, requiring the Secretary of the Treasury and Commerce to identify “budget-neutral” methods for acquiring Bitcoin (BTC).
Understanding Bit Bonds
According to Hohns, Bit Bonds would allocate 10% of the issuance proceeds—$200 billion from a $2 trillion issuance—for purchasing Bitcoin. The remaining 90% would finance ordinary government expenditures. These bonds would carry a lower initial interest rate of 1% for the first ten years, counterbalanced by a final payout structure that guarantees bondholders an annualized return of 4.5% on a senior basis and a share in any potential Bitcoin price appreciation.
As Hohns stated, “$2 trillion bond issuance, 10% of the bonds go for the purchase of Bitcoin, 90% go for other government purchases,” underscoring that the government would retain half of any gains from Bitcoin’s price surge.
The success of this plan leans heavily on Bitcoin’s historical compound annual growth rates (CAGRs). Hohns believes that, should the asset continue to grow at even modest rates seen in the past, significant upside potential exists for both investors and the US Treasury.
From Hohns’ perspective, one of the immediate advantages of issuing Bit Bonds at a lower coupon rate is the reduction of the federal government’s interest burden. With the current US 10-year rate hovering around 4.5%, the proposed 1% rate represents a savings of 3.5% annually, equating to approximately $70 billion on a $2 trillion total issuance—amounting to a staggering $700 billion over a decade.
Even after accounting for the $200 billion allocated to Bitcoin purchases, Hohns projects a net present value (NPV) saving of $354 billion, suggesting that this structure is “revenue-neutral,” thereby offsetting the overall cost to taxpayers through lower interest expenses.
Furthermore, Hohns highlighted the potential for substantial gains should Bitcoin’s price appreciate as it has in previous market cycles. Stressing historical growth rates, he posited that the US government’s share of Bitcoin gains could potentially “defease the federal debt” if Bitcoin meets or surpasses long-term bullish forecasts.
In addition to reducing federal debt servicing costs, Hohns argued that lowering the 10-year rate to 1% could have far-reaching implications, potentially decreasing borrowing costs for mortgages, auto loans, and small business financing. He also envisioned Bit Bonds as a tool for everyday Americans, proposing that they be exempt from both income and capital gains taxes to foster a savings vehicle for citizens.
Using a scenario where 20% of the $2 trillion issuance is allocated to American households, he estimated that each family would receive approximately $2,900, allowing for tax-exempt appreciation and compound growth if Bitcoin performs in line with historical averages.
While Hohns labeled this proposal as a “thought experiment,” its ambitious scope garnered attention from attendees at the Bitcoin For America event. He concluded by underscoring the triple benefits achievable through this initiative—lower government interest costs, a substantial Bitcoin reserve, and enhanced savings opportunities for citizens.
In summary, as Hohns aptly put it, “Bit Bonds are a win-win-win.” His advocacy for this concept aims to inspire adoption by the Treasury and Congress, potentially reshaping the landscape of American finance.
As of now, Bitcoin trades at $82,495.
