VanEck Proposes BitBonds: 10% Bitcoin, 90% US Treasuries for 10-Year Securities

VanEck, a prominent investment management firm, has proposed an innovative financial instrument called "BitBonds" to address the US government's significant refinancing needs. The proposal, presented by Matthew Sigel, VanEck’s head of digital assets research, aims to combine the stability of US Treasuries with the potential upside of Bitcoin (BTC) exposure.

BitBonds are envisioned as 10-year securities, with 90% of the investment allocated to traditional US Treasury bonds and the remaining 10% to Bitcoin. At maturity, investors would receive the full value of the Treasury portion, which would be $90 on a $100 bond, plus the value of the Bitcoin allocation. Additionally, investors would capture 100% of Bitcoin’s upside until their yield-to-maturity reaches 4.5%. Any gains beyond this threshold would be split between the government and bondholders.

This structure is designed to align the interests of bond investors, who are increasingly seeking protection from dollar debasement and asset inflation, with the Treasury’s need to refinance at competitive rates. Sigel described the proposal as “an aligned solution for mismatched incentives.”

According to Sigel’s projections, the investor breakeven for BitBonds depends on the bond’s fixed coupon and Bitcoin’s compound annual growth rate (CAGR). For bonds with a 4% coupon, the breakeven BTC CAGR is 0%. However, for lower-yielding versions, breakeven thresholds are higher: 13.1% CAGR for 2% coupon bonds and 16.6% for 1% coupon bonds. If Bitcoin CAGR remains between 30% to 50%, modeled returns rise sharply across all coupon tiers, with investor gains reaching up to 282%.

Sigel noted that BitBonds would be a “convex bet” for investors who believe in Bitcoin, as the instrument would offer asymmetric upside while retaining a base layer of risk-free return. However, investors would bear the full downside of Bitcoin exposure. Lower coupon bonds could produce steep negative returns in scenarios where BTC loses value. For example, a 1% coupon BitBond would lose 20% to 46%, depending on Bitcoin’s underperformance.

From the US government’s perspective, the core benefit of BitBonds would be lower borrowing costs. Even if Bitcoin appreciates modestly or not at all, the Treasury will save on interest payments compared to traditional 4% fixed-rate bonds. According to Sigel’s analysis, the government’s breakeven interest rate is approximately 2.6%. Issuing bonds with coupons below that level would reduce annual debt service, generating savings even in flat or declining Bitcoin scenarios.

Sigel projected that issuing $100 billion in BitBonds with a 1% coupon and no BTC upside would save the government $13 billion over the bond’s life. If Bitcoin reaches a 30% CAGR, the same issuance could yield over $40 billion in additional value, primarily from shared Bitcoin gains. This approach would create a differentiated sovereign bond class, offering the US asymmetric upside exposure to Bitcoin while reducing dollar-denominated obligations.

Despite the potential benefits, VanEck’s presentation acknowledges the structure’s shortcomings. Investors take on Bitcoin’s downside without full upside participation, and lower-coupon bonds become unattractive unless Bitcoin performs exceptionally well. Structurally, the Treasury would also need to issue more debt to compensate for the 10% of proceeds used to purchase Bitcoin. Every $100 billion in funding would require an additional 11.1% to offset the BTC allocation.

The proposal suggests possible design improvements, including downside protection to shield investors from sharp BTC declines partially. Sigel emphasized that the BTC upside would “sweeten the deal,” with the worst-case scenario being cheap funding and the best-case scenario being long-vol exposure to the hardest asset on Earth.