Even during peacetime, the United States faces important financial challenges similar to those of the crisis. Its national debt is escalating, and the bond market shows signs of vulnerability. What exacerbates these issues is a political environment in which consensus on fiscal solutions remains elusive.
In a conversation with Beincrypto, Matthew Pines, executive director of the Bitcoin Policy Institute, argued that Bitcoin-enhanced financial debt, or Bitbond, could offer alternative solutions that cut interest rates and reduce the financial burden at no additional costs for US taxpayers.
The rise in US debt crisis
The US faces considerable financial pressure, and estimates that the country’s debt is around $36.2 trillion.
What exacerbates this with regard to this figure is the historically rising interest rates on government bonds, with the Treasury yields fluctuating by around 4.3% in 2010 and the 30-year financial yields seeing even higher interest rates.
These percentages present a certain predicament as the government prepares to refinance a significant portion of its debt issued at much lower interest rates during the Covid-19 pandemic.
If new debts are issued at current general tax rates, it inevitably locks the burden of much-heavy benefits for future American taxpayers, exacerbating the country’s financial tensions.
Despite the surprising state of economic health, discourse regarding mitigating problems before they are available was particularly limited. The Crypto community has come up with alternative solutions that may be worth trying.
Chronic financial imbalances
The struggle against the US budget deficit is far from new. For decades, the country has frequently spent more money than it collects, and has continued to accumulate national debt.
Despite its widespread use, most governments that have broken or abolished power have done little to change the course of this long-standing reality.
“We’re in a pretty good economy right now. We have low unemployment rates and moderate inflation, but the government’s financial position seems to be fighting a war. It’s almost back to a level of coexistence. It’s a sign of fundamental pathology in the structure of the federal government’s balance sheet,” Pines told Beincrypto.
Although the fundamental economic approach to addressing the US’s huge budget deficit suggests tougher spending and more production, implementing such measures faces important political hurdles.
“If we lived in a perfect world, governments can balance their budgets and politically arbitrate the hard trade-offs associated with reducing government programs that are not as attractive politically.
This financial pressure reflects wider global change rather than merely internal economic issues, deepening the already obvious power struggle.
Geopolitical pressures and “non-traditional” solutions
China has long been a major US rival. But their competition is stronger than ever. This is especially true in key areas such as economic growth, AI domination competition, and manufacturing capabilities.
China has retained many measures that could disrupt US progress, according to Pines.
“We are in a geopolitical environment where China, especially China, has a lot of leverage in the supply chain, rare earths. And they are now climbing the value chain in terms of manufacturing competitiveness,” he says, “we can whip inflation through supply chain issues.”
This combination of pressures may be sufficient for the US to seek solutions beyond traditional economic policies.
“I think we’re at a point where we have to think about non-traditional ways to help us,” Pines emphasized.
Given the current administration exhibits a certain openness to digital assets, Bitcoin may provide a solution to US troubles.
What are Bitcoin Enhanced Financial Debts?
In March, Pines released a policy brief co-authored with Bitcoin Policy Institute executive Andrew Horns on the implementation of Bitcoin-enhanced Treasury bonds, or Bitbond for short.
The initiative is based on the fundamental concept of a Strategic Bitcoin Reserve (SBR) and has gained traction in a recent executive order establishing stockpiles of Bitcoin and other digital assets.
“The Trump administration essentially does not sell Bitcoin that it already owns (committed) so it sells (citation, citation, budget-neutral methods) to taxpayers to identify, quote and budget-neutral methods to acquire additional Bitcoin in SBR at marginal cost,” Pines says.
Bitbonds may be one way to achieve the latter.
Bitbond Methodology
Bitbonds are essentially regular Treasury bonds, but instead of assigning 100% of the bond’s revenue to traditional government funding operations, some are reserved for the purchase of Bitcoin. How much will the federal government ultimately depend on what it decides.
Pines and Hohns proposed 10% for Simplicity, but Pines revealed that the start and start could be just 1%.
“The government is selling, for example, 10 years’ worth of bonds, and requires 10% of the revenue spent to fund government operations, and puts half of that in the government’s SBR to hold indefinitely,” Pines explains, “the other $50 million is essentially held in the Escrow account and is used to pay a certain lifetime to pay the amount of Bitcoin. The guaranteed distribution of fixed amounts of Bitcoin over the life of the bond.”
These metrics are also controversial. The federal government may decide to use 10% to buy Bitcoin. Otherwise you can all go to the bondholders.
Anyway, the central idea of ​​such bonds is to incorporate the high volatility and high return aspects of Bitcoin into the return profile of the US Treasury debt.
The ultimate goal is to lower interest rates and start paying off your debt using the price increase in Bitcoin.
The advantages of double: lowering rates and utilizing bitcoin
Current interest rates affecting financial holders are, in a way, mortgage their future.
If the federal government has to issue new debts at higher interest rates today to pay off outstanding debts, taxpayers will be liable for much greater interest payments on future national debt. As a result, demand for US debt is declining.
“If there is a potential way to increase demand for US debt, in order to reduce the interest rates the government has to pay, it will save a significant amount of money,” Pines told Beincrypto.
He argues that Bitbonds can stimulate demand for US debt by providing Bitcoin.
“Historically, Bitcoin has been fairly unstable but very positive appreciation. So there are ways to build a security measure that integrates some of the bonds, low volatility, the low risk aspects of traditional bonds, especially some of the government-issued bonds, and a bit of a high-value-tolerant integration, and a high-return aspect of Bitcoin.
This increased demand would allow the government to issue bonds at lower interest rates.
If Bitcoin continues to be grateful over time by running the Bitsbond program, Pines believes it can resolve a meaningful part of the US government’s financial position.
Government involvement will also create deep psychological and market change effects.
Unlocking Bitcoin through government approval
The federal Bitbond program requires the government to purchase large amounts of Bitcoin. Large companies and Bitcoin financing companies often make large acquisitions, but the US would be monumental to do so. It exceeds the current precedent.
Pines emphasized that the main influence stems from deeper changes in perception, not just direct purchase volumes.
“It would really be government support to say they’re going to do something like that. It would probably dramatically change future expectations for Bitcoin prices.
He said the government’s embrace will help “take the risk off” Bitcoin in the eyes of the wider market. He pointed out that Bitcoin is often seen in the results of two extreme binaries. It will become zero and become a global store of value.
By signaling long-term viability and legitimacy, the US government’s strategic adoption effectively reduces the perceived chance of a “to zero” scenario.
Furthermore, Pines pointed out a unique aspect of the government’s position and described it as a “reflective” effect.
“One of the things the government can do that debt issuers can barely do is that if they buy Bitcoin as part of this debt issuance, Bitcoin will rise.
However, if prices drop significantly, the question remains as to how bondholders can protect against Bitcoin volatility.
Reduce Bitcoin volatility for investors
How much of a Bitcoin volatility affects bondholders depends on the risk preference. Speculatively selling bonds before they mature is inherently risky. This scenario is the standard for any bond.
However, for bondholders looking for stability, there are few negative consequences of holding a little bond until maturity. The money originally invested by the owner is guaranteed to be returned by the United States.
“The way we build it, the downside of that is essentially equally limited to buying regular bonds. So, in the worst case scenario, you can’t understand what the normal 10 years of financial security is and get the profit you were trying to get from Bitcoin because Bitcoin didn’t do anything.
Even if Bitcoin crashes, Bitbond’s design ensures minimum revenue or major protection. If that soars, investors’ capital will appreciate it.
A step-by-step approach to unprecedented ideas
Implementing unused concepts like Bitbonds within a traditionally conservative US financial framework presents a set of challenges.
Despite Bitbonds’ persuasive argument, Pines acknowledges that such unprecedented ideas require a careful, step-by-step approach.
“The government encourages you to seriously explore this idea, start small with a pilot program, test the market, see how it trades and see if it can succeed over time,” he said.
Pines also revealed that Bitbonds is intended to serve as a complementary tool rather than destroying the existing financial system.
Although bureaucratic processes and the need for thorough research may slow the path to implementing bitbonds, this concept offers a unique opportunity to address the country’s pressing financial challenges.
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