Bitcoin 
$71,218 The Bitcoin Policy Institute (BPI), a focused non-profit organization, has laid out several reasons why central banks should adopt Bitcoin (BTC) as a reserve asset. In the newly published report, BPI argues that Bitcoin is an effective portfolio diversifier that can protect central banks against emerging macroeconomic threats globally.
Similarities Between Bitcoin and Gold
BPI states that Bitcoin and gold have similar features. This similarity strengthens the logic of using BTC as a reserve asset like a precious metal.
The organization argues that Bitcoin has unique investment characteristics that can help central banks diversify reserves against a variety of risks such as inflation, geopolitical tensions, capital controls, default, bank failures and financial sanctions.
“Bitcoin has unique investment properties that can help central banks diversify against various risks, especially inflation-related risks. “If it is possible for gold to be a reserve asset, Bitcoin is also a reserve asset.”
Bitcoin and Inflation Protection
BPI notes that Bitcoin’s limited supply and halving mechanism, which reduces miner rewards every four years, can protect investor capital against rising prices. Research shows that changes in Bitcoin prices predict changes in expected inflation.
“Changes in Bitcoin prices tend to predict changes in expected inflation. Additionally, when measured on a weekly basis, Bitcoin prices appreciate in response to increases in the online price index. “When looking at major price fluctuations in cryptocurrency markets, only Bitcoin jumps are found to be linked to jumps in the geopolitical risk index, supporting Bitcoin’s unique position among crypto assets.”
Capital Controls and Bitcoin
Data shows that Bitcoin could help investors defy capital controls imposed by governments to protect their cash. It is supported by academic research that Bitcoin facilitates escape from capital controls, especially in developing economies.
“Bitcoin may offer superior liquidity compared to many fiat assets that may be subject to capital controls. Academic researchers have shown that Bitcoin facilitates evasion of capital controls in emerging economies. “For example, the tightening of capital controls in Argentina has been associated with increased use of cryptocurrencies.”
BPI adds that BTC can protect central banks from sanctions and asset confiscations. It is stated that many central banks entrust their investments to third parties such as the Federal Reserve Bank of New York. Such custodians have the ability to freeze account holders’ assets, and they do so.
For example, in 2023, the Central Bank of Venezuela lost the lawsuit it initiated due to the freezing of approximately $2 billion of gold stored in the Bank of England. Such events reveal the importance of Bitcoin’s decentralized structure.
BTC’s limited supply, halving mechanism and decentralized structure make it an attractive reserve asset for central banks. The Bitcoin Policy Institute’s report states that Bitcoin has the potential to support financial stability.
As a result, evaluations of the opportunities and potential risks offered by Bitcoin for financial markets and central banks can play an important role in determining future economic strategies.
Disclaimer: The information contained in this article does not constitute investment advice. Investors should be aware that crypto currencies carry high volatility and therefore risk, and should carry out their transactions in line with their own research.
