The basics of treasury bills and their role in crypto portfolios

Investors are increasingly seeking to gain exposure to Bitcoin, but given its volatility, a diversified portfolio should also hold more stable and predictable assets, like Treasury Bills (T-bills). But what are T-bills, and how do they balance out a portfolio’s risk?   

How treasury bills work

T-bills are bonds, a form of debt issued by the US government to finance its spending, such as on social programs. They’re considered one of the safest investments on the market because the government is highly unlikely to default on its debts, and they’re short-term, repaying the principal within four to 52 weeks.

T-bills sell at a discount, which is how holders earn a return. For instance, if a bill is valued at $1,000, the US Treasury Department prices it at $950, but the investor receives the face value at the end of the term, earning a profit of $50.

The Treasury issues T-bills at regular auctions. Competitive bidders, usually institutional investors, specify their desired return, whereas noncompetitive bidders accept the average return awarded at the auction (making them more accessible to smaller players). T-bills also trade on the secondary market, so they can be purchased through brokerages.  

The role of T-bills in a portfolio

Diversification is one of the most important risk management tools for investors. Essentially, it involves spreading capital over different asset classes, regions and industries so if one holding falls in value, others can offset the losses. Bonds are a key component in a diversified portfolio because they’re mostly uncorrelated- they tend to move in different directions- with more volatile assets like shares and bitcoin. Given their government backing and short-term nature, T-bills are among the most stable and predictable of all US bonds.

T-bills can also serve as a safe haven. Investors typically switch their capital into bonds during periods of geopolitical or economic uncertainty, which weigh on stock markets. For instance, nearly $22 billion flowed into short-term treasuries in the first quarter of 2025 amid concerns that President Donald Trump’s trade policies would hamper the US economy. The market for T-bills is very liquid- they’re easy to buy and sell- so investors can raise cash quickly if necessary.

Finally, T-bills are popular with pensioners because they preserve capital. As investors near or reach retirement, they usually lower the level of risk they take in their portfolio. T-bills practically guarantee that the holder will return the principal at the end of the term while delivering a profit.   

How T-bills hedge against Bitcoin in a portfolio

Bitcoin is one of the most volatile assets an investor can hold in a portfolio. According to the Bitcoin Volatility Index, its price fluctuates against the US dollar more than twice as much as fiat currencies and gold (with which it shares several characteristics). Some of the reasons for this volatility include:  

That said, Bitcoin can add value to a portfolio. Research by CoinShares shows a relatively small allocation of 4% can improve returns for a standard portfolio (60% shares and 40% bonds) by nearly 7%. 

Investors offset the risk of holding a volatile asset like Bitcoin by building a diversified portfolio, and T-bills are a key component as they’re on the opposite end of the risk spectrum. Separate research by CoinShares based on daily data going back to 2020 shows that Bitcoin and T-bills move in the same direction 24.6%  of the time. 

One point worth noting about holding Bitcoin is that the portfolio referenced above is rebalanced, a risk management strategy which involves reverting to the original allocation if a particular asset outperforms. Left unbalanced, the volatility of the portfolio’s returns jumps.

Conclusion

Investing in T-bills has traditionally been relatively hard, but retail investors can now gain exposure through tokenised versions of these instruments (cryptocurrency tokens representing T-bills) with the emergence of new DeFi (decentralised finance) platforms.