New York City Comptroller criticizes Mayor's BitBonds Bitcoin bond reserve strategy, stating he absolutely does not support it during his term.

New York Report: According to the official press release from the New York City Controller, Comptroller Brad Lander strongly rejected the BitBonds Bitcoin municipal bond proposal made by Mayor Eric Adams during the Bitcoin annual conference in Las Vegas. He stated that this is merely a public relations ploy by the mayor to exchange for a private trip, and that Crypto Assets cannot support the public finances of New York City. He specifically issued a statement questioning the feasibility of the proposal both legally and financially, indicating his lack of support for it.

Brad Lander stated that during his term, New York City will not issue any Bitcoin-backed bonds. Lander emphasized that Mayor Adams may have high expectations for Crypto Assets, but as the comptroller, his responsibility is to ensure the financial stability of New York City. Lander pointed out that Crypto Assets are highly volatile and cannot serve as a stable source of funding to support public infrastructure projects like affordable housing and schools in New York City. He also warned that if New York City opens up a reserve strategy for Crypto Assets-backed bond planning, it may weaken the credit rating risk of the bonds currently held by New York City.

Why is the arbitrage model of BitBonds bonds controversial?

According to the BitBond proposal, investors can obtain 100% of the Bitcoin appreciation benefits, but they must reach a certain threshold, such as a 4.5% Compound Annual Return, calculated based on a 10-year bond yielding $155.30 for every $100 invested. After reaching this threshold, investors will receive an additional 50% of the Bitcoin appreciation benefits, while the remaining 50% of the earnings above the threshold will belong to the government. Municipal bonds issued in a tax-exempt manner are subject to federal arbitrage tax rules, which restrict the use of bond proceeds and limit the earnings of such bonds. The current federal tax law system is likely to neither allow the purchase of Crypto Assets through tax-exempt financing nor permit investment earnings to exceed the financing costs subsidized by the federal government.

BitBonds faces multiple institutional challenges due to inconsistencies in legal and financial frameworks.

BitBonds bonds reserves differ from traditional ten-year government bonds, with the BitBonds plan allocating 90% of funds to New York City municipal expenditures and 10% for purchasing Bitcoin as a Strategic Reserve (Strategic Reserve). This allocation raised questions from Brad Lander, who pointed out that according to the tenth guideline of the audit department, New York City can only finance under specific conditions. Under current regulations, municipal bonds should primarily be used for assets that can generate returns over many years, such as long-term public construction and infrastructure or physical assets, rather than speculative virtual assets ( like Bitcoin ).

In addition, BitBonds allows investors to share in the potential appreciation of Bitcoin, which may also violate the restrictions on tax-exempt ( Tax Exempt) municipal bond arbitrage profits under federal tax law. According to existing regulations, tax-exempt bonds cannot be used to obtain returns exceeding the government-subsidized interest rate, especially when such returns come from high-risk assets like Bitcoin.

Brad Lander believes that New York City currently does not have a mechanism for payment or exchange with Bitcoin for US dollars, and all municipal revenues and expenditures are still valued solely in US dollars, which greatly undermines the technical and financial feasibility of BitBonds.

New York City Comptroller Brad Lander strongly opposes Mayor Eric Adams' proposal for BitBonds Bitcoin municipal bonds, arguing that the idea raises legal concerns and is fiscally irresponsible, even criticizing it as a public relations maneuver for the mayor to participate in the Bitcoin conference. Lander emphasizes that Crypto Assets are highly volatile and cannot provide stable support for public infrastructure, and if included in municipal financial planning, could weaken New York City's bond credit rating.

He pointed out that the investment structure of BitBonds does not comply with the regulations of federal tax-exempt bonds, which may violate arbitrage profit restrictions. Additionally, the plan allocates part of the funds to speculative assets like Bitcoin, contrary to the principle that municipal bonds should be applied to long-term municipal capital projects. More importantly, New York City is still unable to use or exchange Bitcoin as an official payment tool, rendering the proposal lacking in practical feasibility.

This article criticizes the city mayor's BitBonds Bitcoin bond reserve strategy by the New York City Comptroller, stating that he absolutely does not support it during his term, first appearing in Chain News ABMedia.