A Bitcoin-focused nonprofit outlines several reasons why central banks should adopt BTC as a reserve.
In a new article, the Bitcoin Policy Institute (BPI) says Bitcoin is an effective portfolio diversifier that can protect central banks from macroeconomic threats emerging around the world.
The organization states that Bitcoin and gold share similar characteristics, reinforcing the rationale that BTC is a reserve asset just like the precious metal.
“Bitcoin possesses a number of unique investment characteristics that can help central banks diversify against a variety of risks, including risks related to inflation, geopolitical tensions, capital controls, sovereign defaults, bank failures and financial sanctions.
To the extent that gold is a reserve asset, so is Bitcoin.”
On Bitcoin’s perceived ownership as a long-term inflation hedge, BPI says BTC’s limited supply and halving mechanism – which reduces miner rewards every four years – can protect investor capital from rising prices.
“Research shows that changes in the price of Bitcoin tend to predict changes in expected inflation. Furthermore, Bitcoin prices, measured at a weekly frequency, rise in response to increases in an online price index.”
BPI also claims that Bitcoin stands out from the rest of the crypto markets during times of heightened geopolitical tension.
“Looking at large price swings in the cryptocurrency markets, researchers found that only Bitcoin jumps were dependent on jumps in a geopolitical risk index, providing further evidence of Bitcoin’s unique position among crypto assets.”
Data also shows that Bitcoin can help investors stave off capital controls imposed by governments seeking to protect their fiat currencies.
“Bitcoin can provide superior liquidity compared to many fiat assets that may be subject to capital controls. Academic researchers have shown that Bitcoin facilitates the evasion of capital controls in emerging economies. In Argentina, for example, the tightening of capital controls has been linked to increased use of cryptocurrencies.”
The organization adds that BTC can protect central banks from sanctions and asset seizures.
“Many central banks entrust their investments to third parties, such as the Federal Reserve Bank of New York. These custodians sometimes choose to freeze the assets of their account holders. For example, in 2023, the Venezuelan Central Bank lost a court case to release almost $2 billion of its gold deposited with the Bank of England.”
You can read the full report here.
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