Bitcoin and the Changing World Order

The Dalio Diagnosis

The United States faces a fiscal inflection point. Federal debt exceeds $38.5 trillion (125% of GDP), its highest level outside of wartime. Annual interest payments exceed $1.2 trillion, surpassing the entire defense budget. Structural deficits average 6% of GDP with no credible path to reduction. In Ray Dalio’s framework from The Changing World Order, America exhibits the signature late-cycle mix: record peacetime debts, interest expenses rising faster than revenues, a heavier reliance on domestic absorption of sovereign issuance, and a slow drift in reserve-share leadership.

The conventional remedies (default, austerity, or inflation) each carry catastrophic consequences. A Russian-style default would shatter confidence in Treasuries as the global safe asset. Greek-style austerity would default on citizens through prolonged economic hardship. Weimar-style inflation would destroy purchasing power and accelerate the decline of dollar hegemony.

This brief examines a fourth path: upgrading America’s monetary architecture through strategic Bitcoin integration. Four interconnected policy instruments (Bitbonds, Bitbills, Bitbanks, and a Strategic Bitcoin Reserve) can directly address Dalio’s prescription for fiscal stability while reinforcing dollar dominance rather than undermining it.

“Based on my readings of history, my readings of existing conditions, and my understanding of how the economic machine works, the promises that are denominated in the world’s reserve currencies, most importantly the dollar, are too large and growing too fast to be paid in hard money.”

Ray Dalio, The Changing World Order

The Late-Cycle Indicators

Dalio’s framework identifies several markers of late-cycle decline, all of which the United States now exhibits. The dollar’s share of global reserves has fallen from 71% in 1999 to below 58% in 2025. The monetary policy playbook is exhausted: policy rates have risen to their highest level since 2007 while the Fed still holds a multi-trillion-dollar balance sheet. The “twin deficit” problem (simultaneous fiscal and current account deficits) forces reliance on foreign creditors whose appetite is waning.

Perhaps most concerning is the political dimension. Decades of easy money have increased wealth inequality, creating a doom loop as political division compounds fiscal strain. Dalio warns the U.S. is at “the highest level of internal conflict since the 1930s.” This fragmentation reduces capacity for bipartisan fiscal reform, increasing the likelihood of policy paralysis or destabilizing resolution.

The 3%, 3-Part Solution

In his 2025 analysis, Dalio proposes a concrete prescription: reduce the federal deficit from ~6% to 3% of GDP through three mechanisms working in concert. This target is not arbitrary; it represents the threshold below which debt dynamics stabilize rather than compound.

Dalio identifies interest rate reduction as “the most impactful” lever, and this is precisely where Bitcoin-integrated instruments offer the greatest advantage. By embedding Bitcoin exposure into Treasury securities, the government can attract new investor classes willing to accept lower yields in exchange for hard-asset upside. This is not financial alchemy; it is a structural innovation that aligns incentives across sovereign issuers and global savers.

“The budget deficit should be cut to 3% of GDP from what it is currently projected to be (about 6% of GDP), and these cuts can come from 3 sources: spending cuts, tax increases, and interest rate cuts, with interest rate cuts being the most impactful.”

— Ray Dalio, TIME (2025)

Bitcoin-Enhanced Treasury Bonds (Bitbonds)

Bitbonds are U.S. Treasury securities that allocate 10% of proceeds to Bitcoin purchases while offering investors a reduced coupon plus Bitcoin-linked upside at maturity. First conceptualized by Dr. Andrew Hohns, they represent the most direct application of Bitcoin to Dalio’s interest rate prescription.

Financial Impact

The arithmetic is compelling. By reducing effective borrowing costs from ~4.5% to 1%, Bitbonds generate estimated annual interest savings of $70 billion, totaling $700 billion over ten years with a present value of $554 billion. Even after accounting for the $200 billion Bitcoin allocation, the structure produces net taxpayer savings of $354 billion assuming flat Bitcoin prices.

The potential upside scales dramatically with Bitcoin appreciation. At the 10th percentile of historical returns (30% CAGR), the government’s reserve share reaches ~$0.83 trillion. At median historical returns (53% CAGR), upside expands to $6.48 trillion. Under scenarios where Bitcoin continues its historical trajectory, Bitbonds could defease as much as $50.8 trillion of federal debt by 2045.

How Bitbonds Serve the 3% Solution

Lower Interest Rates: Reduces effective borrowing cost from 4.5% to 1%, representing the single largest contribution to deficit reduction. Revenue Generation: Bitcoin appreciation generates federal income without raising taxes. Spending Discipline: Creates visible, auditable reserve constraints that anchor expectations about monetary policy.

Bitcoin Bills of Exchange (Bitbills)

Bitbills are short-maturity, Bitcoin-redeemable credit instruments (typically 30 to 270 days) issued by private firms for working capital and trade finance. They represent a private-sector complement to sovereign Bitbonds, addressing the structural fragility Dalio identifies in elastic-base-money systems.

The concept originates with Jack Watt’s essay Bitcoin and Credit, which envisions a proliferation of short-term instruments redeemable for Bitcoin as a means to constrain unsustainable credit expansion. By tying redemption to independently attested, onchain reserves, Bitbills impose a hard, verifiable boundary at the monetary base. The purpose is not to suppress credit, but to discipline its creation.

“Short-term credit instruments redeemable for bitcoin can fulfill the demand for money while economizing on the use of base money and without creating unsustainable credit bubbles.”

— Jack Watt, Bitcoin and Credit

How Bitbills Serve the 3% Solution

Spending Discipline: Credit expansion bounded by verifiable reserves creates natural constraint on fiscal profligacy. Lower Interest Rates: Reduces hidden leverage and rehypothecation that drive systemic risk premia. Systemic Stability: Constrains boom/bust cycles from policy-driven credit, reducing need for emergency interventions.

Bitcoin Banks (Bitbanks)

Bitbanks are commercial banks that integrate Bitcoin into custody, payments, lending, and reserve operations. They treat the Bitcoin network as a correspondent settlement layer alongside traditional central bank rails. The concept traces to Hal Finney’s 2010 vision of “Bitcoin banks” issuing claims backed by Bitcoin reserves.

Bitcoin as Correspondent Bank

Rather than viewing Bitcoin as a separate parallel system, it may be more accurate to view it as a decentralized central bank: an independent currency issuer with programmatically fixed monetary policy. Banks already use correspondent institutions to access foreign central bank ledgers (Fed, BOJ, ECB). Adding a Bitcoin correspondent fits within existing commercial bank architecture without radical restructuring.

Bitcoin offers the same settlement finality as Fedwire with comparable transaction throughput. Unlike traditional central bank reserves, it operates on a globally accessible, politically neutral network with programmatically finite supply. The entry point is simply leveraging a designated correspondent, no different from connecting to any foreign central bank today.

How Bitbanks Serve the 3% Solution

Spending Discipline: Bitcoin’s attributes incentivize banks to hold higher reserves, constraining excess credit expansion. Revenue Generation: New fee income streams from custody, lending, and brokerage without tax increases. Lower Interest Rates: Efficient settlement rails reduce transaction frictions and correspondent banking costs.

Strategic Bitcoin Reserve (SBR)

On March 6, 2025, President Trump signed Executive Order 14233 establishing the Strategic Bitcoin Reserve. The order directs Treasury to consolidate seized BTC into the reserve, prohibits sales, and instructs Treasury and Commerce to develop budget-neutral acquisition strategies. This represents the institutional foundation for sovereign Bitcoin integration.

Budget-Neutral Acquisition Pathways

The Executive Order requires that additional BTC acquisition impose “no incremental costs on American taxpayers.” Several mechanisms satisfy this constraint:

How the SBR Serves the 3% Solution

Revenue Generation: Bitcoin appreciation improves debt-to-GDP ratio without raising taxes. Spending Discipline: Transparent reserves constrain the temptation for monetization. Credibility Signal: Scarce reserve backing reinforces confidence in dollar obligations.

“If you were optimizing your portfolio for the best return-to-risk ratio, you would have about 15% of your money in gold or Bitcoin… I hold a little bit of Bitcoin.”

Ray Dalio, Master Investor Podcast (2025)

Integrated Framework

The four instruments work synergistically to address Dalio’s prescription. Each targets different aspects of the fiscal challenge while reinforcing the others:

Quantified Impact Potential

The combined effect of these instruments on America’s fiscal trajectory is substantial:

National Security Dimensions

Bitcoin integration extends beyond fiscal mechanics to core national security interests. Economic security is national security, and maintaining monetary dominance is essential for preserving America’s capacity to respond to threats from rising powers.

Technological Dominance

By fostering domestic mining and innovation, the U.S. secures leadership in the next era of financial infrastructure. America already controls >30% of global hashrate. As Patrick Witt, Executive Director of the President’s Council of Advisors for Digital Assets, argues: “Bitcoin and the digital assets ecosystem is an engine for economic growth, and a strong economy enables everything else.”

Monetary Dominance

Supporting Bitcoin prevents adversaries from undermining dollar hegemony through alternative systems while enabling capital inflows into U.S. markets under rule-of-law institutions. In geostrategic competition, the country that anchors the leading digital reserve asset gains structural advantages regardless of short-term price movements.

Military Resilience

Bitcoin’s proof-of-work architecture provides electro-cyber security capabilities. Drawing from Jason Lowery’s Softwar thesis, PoW can harden time-stamping and logging, throttle automated abuse at gateways, and provide a denial-resistant reserve asset for crisis liquidity. Bitcoin functions as an electro-cybersecurity technology for power projection in cyberspace.

Addressing Dalio’s Bitcoin Concerns

Intellectual honesty requires acknowledging that Ray Dalio himself has expressed reservations about Bitcoin’s role as a reserve asset. While he recommends allocation to hard assets and holds Bitcoin personally, he has articulated specific concerns that deserve direct response.

“Bitcoin is limited in supply… It’s perceived as money, as a storehold of wealth, that is unlikely to be significantly held by central banks and many others because of the number of problems it has.”

Ray Dalio, WTF Podcast (December 2025)

Concern: Transaction Transparency

Dalio argues that Bitcoin’s public ledger allows governments to monitor transactions, making it less attractive than gold for sovereign holders seeking privacy. “Governments can see who is making what transactions… Gold is the only asset that you can have that they can’t mess with and control.”

M31 Response: For a U.S. Strategic Reserve, transparency is a feature, not a bug. Unlike gold held in foreign vaults or offshore accounts, Bitcoin reserves are cryptographically verifiable in real-time. This transparency strengthens rather than weakens institutional credibility. The concern about government surveillance applies to adversaries holding Bitcoin—making U.S.-held Bitcoin more secure, not less. Furthermore, Layer 2 solutions and institutional custody arrangements can provide appropriate privacy for operational security while maintaining auditability.

Concern: Technical Vulnerability

Dalio raises the possibility of Bitcoin being “cracked, broken, all sorts of things, and controlled,” comparing it to the risk of synthetic diamonds undermining natural diamond scarcity.

M31 Response: Bitcoin’s security track record speaks for itself: 100% uptime since 2013 with zero successful protocol attacks across 16+ years of operation. The cryptographic foundations (SHA-256, elliptic curve cryptography) would require quantum computing breakthroughs that remain decades away—and the Bitcoin protocol can be upgraded to quantum-resistant algorithms before such threats materialize. The “synthetic diamond” analogy fails because Bitcoin’s scarcity is mathematically enforced, not geologically constrained. No amount of computing power can create Bitcoin outside the protocol’s 21 million cap.

Concern: Central Bank Adoption Unlikely

Dalio believes central banks won’t adopt Bitcoin at scale due to privacy limitations and technical concerns.

M31 Response: This analysis doesn’t propose that central banks replace gold with Bitcoin—it proposes that the U.S. Treasury hold Bitcoin as a complementary reserve asset. The Czech National Bank has already purchased Bitcoin for its reserves. El Salvador maintains a national Bitcoin position. The question is not whether central banks will hold Bitcoin, but which nations will accumulate strategic positions before supply constraints make meaningful acquisition prohibitively expensive. Dalio’s skepticism about central bank adoption was similarly expressed about gold ETFs, corporate Bitcoin holdings, and Bitcoin futures—all of which subsequently achieved institutional adoption.

Reconciling the Tension

Notably, Dalio’s actions diverge from his stated caution. He holds Bitcoin personally, recommends 15% portfolio allocation to gold or Bitcoin, and has consistently warned that fiat currencies are being debased. His framework correctly identifies the problem (late-cycle debt dynamics, currency debasement, need for hard assets) while underweighting Bitcoin’s solution potential relative to gold. This analysis accepts Dalio’s diagnosis while offering Bitcoin-integrated instruments as mechanisms to achieve his prescribed outcomes—mechanisms unavailable to prior reserve currency issuers precisely because Bitcoin didn’t exist during previous debt cycles.

Risk Assessment

The risks are real: volatility, custody failures, and policy reversals. But these are manageable with conservative position sizing, institutional safeguards, and transparent governance. The greater risk may be inaction: allowing adversaries to shape the next monetary regime while America’s fiscal position deteriorates along the trajectory Dalio warns leads to an “economic heart attack.”