A Bitcoin-focused nonprofit organization is outlining several reasons why central banks should adopt BTC as a reserve asset.
In a new paper, the Bitcoin Policy Institute (BPI) says Bitcoin is an effective portfolio diversifier that can shield central banks against macroeconomic threats emerging across the globe.
The organization argues that Bitcoin and gold share similar characteristics, solidifying the rationale that BTC is a reserve asset much like the precious metal.
“Bitcoin possesses some unique investment characteristics that could help central banks diversify against several risks, including those related to inflation, geopolitical tensions, capital controls, sovereign default, bank failures, and financial sanctions.
To the extent that gold is a reserve asset, so is Bitcoin.”
On Bitcoin’s perceived property as a long-term inflation hedge, BPI says BTC’s limited supply and halving mechanism – which reduces miner rewards every four years – may protect investor capital against rising prices.
“Research suggests that changes in the price of Bitcoin tend to predict changes in expected inflation. Moreover, measured at a weekly frequency, Bitcoin prices appreciate in response to increases in an online price index.”
BPI also contends that Bitcoin separates itself 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 upon jumps in a geopolitical risk index, providing further evidence of Bitcoin’s unique position among crypto assets.”
Data also suggests Bitcoin can help investors ward off capital controls imposed by governments looking to protect their fiat currency.
“Bitcoin may offer superior liquidity compared to many fiat assets that are potentially subject to capital controls. Academic researchers have shown that Bitcoin facilitates the evasion of capital controls in emerging economies. For example, in Argentina, the tightening of capital controls was associated with increased usage of cryptocurrencies.”
The organization adds that BTC can safeguard central banks against sanctions and asset confiscation.
“Many central banks entrust their investments to the custody of third parties, such as the Federal Reserve Bank of New York. These custodians sometimes choose to freeze their accountholders’ assets. For example, in 2023, the Venezuelan Central Bank lost a court battle to unfreeze nearly $2 billion of its gold deposited at the Bank of England.”
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