Can This New ‘Bond’ Save Economy? (Uncut) 05-13-2025

Countdown To $9 Trillion Crisis: Can This New ‘Bond’ Save Economy? | Matthew Pines

The U.S. faces a historic debt reckoning with more than $9 trillion in federal debt coming due over the next year, threatening to deepen fiscal and deficit issues and put pressure on taxpayers potentially. Amid the fiscal crunch, policymakers are scrambling for solutions that balance fiscal responsibility with innovation. So enter Bitcoin Enhanced Treasury Bonds or BID bonds.

It’s a executive order of a strategic Bitcoin reserve has been gaining traction in media. So we’ll see how these two entities play out. Joining us today is Matthew Pines, executive director of the Bitcoin Policy Institute, and now one of the architects of the BID bonds framework to discuss whether this hybrid instrument can defuse America’s debt problem and be the solution.

Welcome to the show, Matthew. Good to see you. Thanks for having me.

You and Andrew Hans, who will be on our show later next week, recently outlined a white paper proposing for a Bitcoin Enhanced Treasury Bonds or BID bonds that could help the U.S. refinance its massive debt. The article mentioned that BID bonds promises a tantalizing trifecta, quote unquote, fiscal relief, strategic asset accumulation and wealth building for everyday Americans. Can you just briefly explain how this may work and kind of the genesis of this concept here? Yes, thanks for asking me that.

And I think this is one of those ideas that has been moving through the Arbiten window and is now a serious policy option that requires serious analysis. And that’s why we collaborated on the Bitcoin Policy Institute with Andrew Hans, who’s an expert in structured finance and Bitcoin to kind of put some meat on the bones, because this idea of sort of synthetic instrument that integrates Bitcoin with traditional U.S. debt securities has been sort of floated in the Bitcoin world for a while. But we want to sort of put some pen to paper and try to look at what sort of structures make sense and what would be the strategic logic and how it might align with the national security and economic security priorities that have been laid out by the White House here.

And so that was where we started, thinking about how the U.S. government is trying to achieve a multifaceted set of sometimes competing objectives, right? They want to fund themselves on a more sustainable basis and not have to pay these crippling interest costs. They also now, post-executive order, want to acquire Bitcoin, but in a budget neutral fashion. And they also want to encourage other sort of tax advantaged means of sort of wealth accumulation by the American people.

And we felt that the concept of a Bitbon, essentially a traditional U.S. debt security with an integrated kind of Bitcoin kicker, kind of can, depending on how you structure it, serve all those objectives. And so that’s kind of what we analyze in the White Paper. Obviously, there’s lots of different knobs that you could tune.

But the basic concept is, say, you issue a certain sort of type of treasury debt instrument where the proceeds from that issuance go into acquiring a certain amount of Bitcoin. And then half of that Bitcoin goes into the Strategic Bitcoin Reserve to be held on behalf of the American public over the long term. Half goes into escrow and is essentially used to pay out Bitcoin interest payments to the holders of those debt instruments.

And so, say, 10 percent of the total issuance goes into Bitcoin, 90 percent goes in traditional sort of U.S. debt accumulation for government expenses. And if it works out well, you could issue such securities at a lower than market interest rate. The government acquires Bitcoin without otherwise sort of budgeting, you know, kind of with competing, you know, sort of line items.

And if you have it be a tax deferred or tax advantaged instrument, American citizens can hold a pretty low risk U.S. treasury instrument with a sort of fixed Bitcoin coupon associated with that debt security. So we want to put this on the table and, you know, stimulate discussion and analysis. We know the Treasury Department is an inherently conservative institution, but at least we wanted to get them thinking about it.

In the May 5th policy brief from the Bitcoin Policy Institute, you discussed how big bonds could allocate 90 percent of bond proceeds to conventional government funding operations and 10 percent to Bitcoin acquisition. How did that ratio come about? Can you walk us through the allocation here? Well, it’s just kind of, again, kind of like sticking our finger in the air to a certain extent. I feel like, you know, you can sort of tune this however you want.

I think what we wanted to start relatively conservatively, you know, 10 percent is significant, but it wouldn’t overwhelm the overall kind of profile of the bond. And, you know, one of things that we encourage as recommendations to the Treasury Department is essentially to start with a pilot program and potentially issue different types of bit bonds with a different kind of composition and see what the market demand is with different configurations of the bond and sort of try to find the right sort of optimal mix of risk versus sort of volatility and the associated demand in the market here. So I think, you know, 90-10 is a nice place to start, depending how you structure it.

I know how we sort of engineered this with Andrew Hone’s guidance was essentially 4.5 percent senior and 50 percent Bitcoin upside so that upon maturity, investors would receive 100 percent of the Bitcoin upside up to 4.5 percent of the total compounded return and then 50 percent of all the remaining Bitcoin upside. So essentially, a buyer of the bond would sort of get paid out kind of a guarantee what an otherwise, say, 4.5 percent 10-year note would be if it’s a 10-year duration instrument. And then they get half of the additional Bitcoin upside and the rest is given to the government there.

So any one of those sort of knobs you could tune to think about pushing more of the risk on to the buyer of the bond or to the U.S. government. But yeah, a 90-10 was a good sort of initial place to focus the analysis. So for bond investors out there who are more used to traditional instruments, what’s the investment case for this hybrid structure? Yeah, I mean, you could kind of construct a synthetic version of this by just sort of buying a treasury bond and then buying some Bitcoin, right? You could construct a version of it in sort of the options market.

So I think for sophisticated investors, they could kind of construct a similar instrument synthetically. But for the average buyer of U.S. debt that may not be as sophisticated or have access to those sorts of products, this provides a pretty clean mechanism, also one that would be backed by the full faith and credit of the United States. And in particular, as it being tax advantaged, would allow folks to defer capital gains.

And so that would be a unique instrument that you couldn’t otherwise, you know, acquire or sort of produce as a result of a sophisticated options strategy. Does it compare to anything that exists in the market today, any DeFi solutions or any traditional hybrid debt instruments in traditional capital markets? Yeah, I mean, the closest analogy would be the various like, you know, debt securities that MicroStrategy has issued, right? You know, he’s issued a whole plethora of these convertible instruments, as well as traditional corporate debt. That’s, you know, their main function is essentially to give access to capital pools, exposure to Bitcoin with the volatility kind of dialed up or down, depending on their risk tolerance, as well as their investment mandate.

And that was sort of the, you know, successful insight of Saylor was that there are, you know, pools of capital that have a very constrained mandate that prevents them from just acquiring Bitcoin outright. And so he can kind of give them exposure to Bitcoin in a way that fits within their mandate and within their risk tolerances. And I think this sort of product, you know, being issued by the U.S. government would, I think, be able to tap into a much even larger pool of capital that isn’t looking for corporate bonds, but is looking for sovereign debt.

And there’s no sovereign debt issuer that has issued a bond like this. And so the U.S. government doing it would obviously be the first mover here. I think it should be done prudently.

It should be studied. You know, the U.S. government doesn’t just sort of issue new debt securities on a whim. They usually take their time to assess the market demand, the difference between the on the run and off the run, you know, sort of market structure, how the dealers would handle it.

But, yeah, I think it’s one of those ideas that starting with, say, a $10 billion pilot program and then dialing it up or down or sort of redialing the term structure or the parameters around Bitcoin versus U.S. dollar payouts seems like a sensible approach, especially if they’re embarking on a pro-Bitcoin policy where they want to find ways of acquiring Bitcoin for this region, Bitcoin reserve itself, without having to, you know, take funds away from another appropriated government program. Do you see this instrument performing more like a treasury in today’s market or more like a Bitcoin index fund? How do you see it playing out in today’s environment? I mean, it’s probably going to be downstream of the overall demand for Bitcoin. It’s going to have this interesting component to it, which is it has the dollar payout, which is going to have a, you know, traditional term premium.

And then you’re going to have this additional, you know, Bitcoin kicker, which is going to have more speculative demand components to it. And you’re going to have kind of two of those crosscurrents, which to a certain extent might cancel each other out. Right.

In the sense that, you know, natural pressures towards devaluation and towards sovereign debt essentially becoming less desirable as an asset being grafted on with an asset that is somewhat inverted in its relationship to the performance of bonds. It’s similar to kind of like the Judy Shelton idea of sort of a gold backed or gold sort of integrated sort of treasury bonds and you’re taking a hard asset and sort of synthetically integrating it with traditional fiat debt security. You know, I think it’ll have a similar similar profile, might be a bit more volatile in terms of how it trades.

I think the market that would find an equilibrium pretty quickly, as we’ve seen with with sailors, you know, he had to kind of teach the market to a certain extent how to how to value these sorts of bonds and convertible instruments. I think very quickly, though, the market adapted and there was a pretty strong demand. So I think that that would likely happen as well.

But yeah, that’s that’s nature of the market, right? It’s hard to predict. And so you want to start start small and then, you know, see how it goes. Are you ready to meet the biggest minds in Bitcoin face to face? Well, this summer, the crypto capital of the world isn’t Silicon Valley or New York or even Miami.

It’s Las Vegas introducing Bitcoin Vegas, the ultimate Bitcoin event of twenty twenty five. And this is not your average conference. Join real conversations with people shaping the future of money.

Thought leaders like Michael Saylor, Lynn Alden, Ross Ulbricht, Winklevoss Twins, David Sachs, and many, many more. Whether you’re a hodler builder or just Bitcoin curious, BTC Vegas is where ideas ignite partnership form and conviction grows in the space. Tickets are going fast.

So lock in your spot today using my link down below or scan the QR code here. You’ll get a 10 percent discount. Get it before tickets are sold out completely.

We’ll see you in Vegas. I think I was just where I was going with this is how volatility in Bitcoin is going to impact the underlying value. Do you see the nav changing alongside Bitcoin? Yeah, probably.

Yeah. I mean, it’s if it’s if it’s 10 percent, right, it’ll be somewhat muted if you had a higher higher proportion. I think it’d be really just how the how these trade relative to to kind of the vanilla like sort of par equivalence and to see, you know, is there is there instead of a term premium, is there like a term discount associated with the Bitcoin related bond? You know, is it more valuable in the off the run than the on the runs? That would be really interesting.

Right. Typically kind of less the off the runs are less liquid. They trade with the high, you know, a slightly higher premium.

You know, you can have a situation here where the these these these Bitcoin bonds actually trade, you know, essentially term discount in the off the runs. That would be interesting. But I don’t know.

I’m just speculating. Well, what is your let’s let’s let’s all speculate together. What is your outlook on Bitcoin and the macro drivers surrounding Bitcoin for this year? As we’re speaking on the 9th of May, Bitcoin has just rebounded to above one hundred thousand dollars at one hundred and three thousand dollars now.

Just a huge rally last couple of days. What’s been going on? Well, I mean, I’m not a day trader, but I think my my structural thesis for the global economic and monetary system is driven by an assessment of geopolitical order that’s being reshuffled. My background is doing sort of national security consulting for the government.

Worst case scenario, planning, emerging technology assessment before I kind of got into Bitcoin policy. And so I was advising lots of multinationals a few years ago post the Russia invasion of the geopolitical and cybersecurity risk environment. I think that is that is accelerating.

Essentially, it’s become very clear that the incoming minister, the new administration wants to reorder the the the terms of the economic deal and the security arrangements. They are essentially setting up a club in a fence. And the term of entry to that sort of security, tech and tariff trade zone is going to be a number of trades, swaps, whether it’s preferential access, whether it’s swaps for foreign exchange reserves, for century bonds, gold being remonetized and all driven by kind of this U.S.-China strategic competition dynamic where the status quo system that was in place for the past 40, 50 years is seen by an increasing number of elements of the U.S. power structure as being non-sustainable.

And they want to change it pretty quickly. And that’s leading to a lot of frictions and fractures. I think the upshot is these sorts of dynamics tend to disrupt pretty fragile debt markets.

And so there’s going to be more liquidity injected into the system, whether overtly or otherwise. So more access to repo facilities, more sort of bank shot QE through cooperative central banks that are sort of geopolitically conditioned, as well as U.S.-China stimulus. And so overall, I think you’re going to see more liquidity in the global environment.

And that’s going to lead to higher asset prices for assets like Bitcoin. So I think structurally bullish on Bitcoin, not just for those sort of monetary dynamics, but also I think the geopolitical system fracturing and fragmenting as we kind of reconfigure the global order and as the terms of trade and the role of the Treasury security as a global reserve collateral and that offshore dollar system that was heavily influenced and dominated by sort of Asian surpluses is being restructured pretty quickly. I see.

Do you see the Bitbon structure applicable also to stable coins potentially? In a certain sense, although the implementation is very different. I think the proliferation of dollar-based stable coins, and we’ve heard about this for a number of years now, has a lot of strategic sort of complementarity with U.S. interests in the sense that in sort of two key ways. So one is it allows the U.S. dollar network to expand.

So the actual users of dollars around the world sort of being integrated into a dollar system on crypto rails, as opposed to sort of a hierarchical correspondent banking sort of offshore dollar system that’s been in place since the 50s and sort of been a source of increasing instability and stress as it has to kind of be re-underwritten and backstopped by Fed swap lines and various repo facilities. So you have the expansion of the dollar network through stable coin rails, as well as if you have properly regulated and properly reserved stable coin issuers, those become an expanding source of demand for U.S. Treasury debt. The Treasury Borrowing Advisory Committee just two weeks ago put out a report by request of the Treasury Department to look at what is the forecast increase in the size of the stable coin market.

And they basically forecast anywhere from right now about $250 billion to $2 trillion in the next three years. And that that would likely lead to a total increase to about a trillion dollars in annual demand for T-bills by stable coin issuers. Yes.

Which the total, I think, T-bill market’s like $6 trillion. So that would be a significant portion of the total T-bill market. I think right now just Tether alone is about 2.5 percent of the T-bill market.

If they 10x, that’s 25 percent of T-bill issuance. And so now you have this one new monetary element of the global system that’s sort of coming into existence pretty quickly in the next few years. And it will become a strategic component of how the U.S. government will service its debts, as well as expand its dollar system around the world.

And they view that as critical to kind of holding the line against authoritarian CBDCs, you know, sort of Chinese digital yuan, as well as sort of, you know, attempts to kind of rewrite kind of the terms of technological governance in a society that’s going to increasingly be roped into, you know, AI, digital economic systems. And so who writes the rules for those systems and whose currencies are being sort of integrated into those networks is going to sort of, you know, have asymmetric advantage there. So, yeah, I think stable coins are a major component of kind of the great power network competition that’s going to play out, already is playing out, but it’s going to accelerate.

Do you see bitcoins or cryptos, for that matter, playing a role in the money supply going forward? In other words, if credit expands to crypto and bitcoin instruments, would that contribute to the money supply in some way? Yes. So stable coins in particular, right. The analysis that TBAC had showed that they expect the increase in the money supply to be principally in the offshore dollar system.

I think they don’t see much of a net increase in sort of traditional M1, M2 measures in the domestic money supply, mainly because they’re already, you know, there’s not like sort of term deposits and sort of banking deposits aren’t going to be competed really versus stable coins. But in the offshore dollar system, where there’s going to be a lot of folks that are going to be swapping their currencies for stable coins, that will lead to an increase in the amount of dollars in circulation if you count all those dollars. And so that could lead to interesting sort of set of dynamics associated with how that gets translated back to the onshore system, especially if they’re fully reserved with high quality liquid assets like short term treasury debt.

And I’d say like the upshot would be, as we’ve seen with activist treasury issuance from Yellen that’s continued to be under underbassant, generally speaking, the more short term debt that you issue relative to long term debt, you know, that’s sort of a functional equivalent to expanding the sort of elasticity in the money system. So more dollars effectively available because short term treasuries function as really useful kind of overnight collateral. So, yeah, I think stable coins themselves could then be also used as collateral in the offshore system as well.

I think that’s starting to take shape, mostly in the crypto sort of native markets, but has to become highly integrated and sort of regularized. Like why bother with a three month treasury bill when you actually have a fully reserved regulated stable coin that’s like from JP Morgan or something, right? Like just use that as your collateral. Why would I bother just taking something that’s maybe even less liquid, like a three month treasury note? So, yeah, you could see what we think of as being collateral evolved as well.

Finally, what is the timeline for the Bitbond instrument, hypothetically speaking? Well, yeah, so this goes into the timeline the U.S. government has set for itself on all the Bitcoin specific issues that it’s put on its plate. And so the executive order was signed and it gave essentially a hundred day clock to come up with like a consolidated report. Part of that report will be essentially the recommendations to the president on acquiring Bitcoin in a budget neutral fashion.

And so the treasury secretary and the commerce secretary have been developing those policy proposals over the past few weeks. They’ve been sort of workshopping them as a group, the president’s working group on digital assets. I think those span the gamut from somewhat couch cushion money, like selling other non-Bitcoin related digital assets, all the way to things like Bitbonds, to revaluation of the gold certificates, to privatizations, to oil and gas lease sales, to royalties, to tariffs, to all sorts of sources of funds that the government has either liquid or illiquid assets that it could be using to acquire additional Bitcoin.

I don’t think Bitbonds are going to be the first things out the gate. I think the Treasury Department is probably going to take a long time to study those, and they may even ask for congressional authorization before they do it. But I think in the shorter term, you’re going to see more explicit moves from the White House to acquire Bitcoin in a budget neutral fashion.

And so this might lead to something like Bitbonds down the line, but I think that won’t be the first thing that we’ll see. All right. Fantastic.

Thank you very much. Appreciate your time, Matthew. Where can we follow you and learn more from your work in the meantime? Yeah.

So go to btcpolicysummit.org. We’re holding our first or our largest Bitcoin-focused policy summit in DC on June 25th. We’re going to have very senior government officials there talking about the strategic implications of Bitcoin. So you can follow our work at btcpolicy.org. And I’m on X at Matthew underscore Pines.

Excellent. We’ll put the links down below. So make sure to follow Matthew there.

Good stuff, Matthew. Thanks for coming on the show. Take care for now.

We’ll speak again soon. Thanks for having me. Thank you for watching.

Don’t forget to like and subscribe.