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The Bitcoin Policy Institute (BPI), a nonprofit organization focused on Bitcoin, outlines various reasons for central banks to adopt Bitcoin (BTC) 
$102,676 as a reserve asset. In a recently published report, BPI argues that Bitcoin serves as an effective portfolio diversifier that can protect central banks from emerging macroeconomic threats globally.
Similarities Between Bitcoin and Gold
BPI emphasizes the similarities between Bitcoin and gold. This comparison strengthens the rationale for using BTC as a reserve asset like precious metals.
The organization asserts that Bitcoin possesses unique investment characteristics that can help central banks diversify their reserves against various risks such as inflation, geopolitical tensions, capital controls, defaults, bank failures, and financial sanctions.
“Bitcoin has unique investment features that can assist central banks in diversifying against various risks, particularly those related to inflation. If gold can serve as a reserve asset, Bitcoin can similarly function as one.”
Bitcoin as a Hedge Against Inflation
BPI states that Bitcoin’s limited supply and its halving mechanism, which reduces miner rewards every four years, can protect investor capital against rising prices. Research shows that fluctuations in Bitcoin prices tend to predict changes in expected inflation.
“Changes in Bitcoin prices tend to predict changes in expected inflation. Moreover, when measured weekly, Bitcoin prices gain value in response to increases in online price indices. Notably, among significant price fluctuations in the cryptocurrency market, only Bitcoin spikes correlate with surges in the geopolitical risk index, supporting Bitcoin’s unique position among crypto assets.”
Capital Controls and Bitcoin
Data indicates that Bitcoin can help investors resist capital controls imposed by governments to protect their cash. Academic research supports the notion that Bitcoin facilitates evasion of capital controls, especially in developing economies.
“Compared to many fiat assets that may be subject to capital controls, Bitcoin offers superior liquidity. Academic researchers have demonstrated that Bitcoin facilitates escape from capital controls in developing economies. For instance, the tightening of capital controls in Argentina has been associated with increased cryptocurrency usage.”
BPI further notes that BTC can protect central banks from sanctions and asset seizures. Many central banks reportedly entrust their investments to third parties like the New York Federal Reserve Bank, which have the ability to freeze account holders’ assets, and they do so.
For example, in 2023, the Central Bank of Venezuela lost a case regarding the freezing of approximately $2 billion in gold held at the Bank of England, highlighting the importance of Bitcoin’s decentralized structure.
The limited supply, halving mechanism, and decentralized nature of BTC make it an attractive reserve asset for central banks. The report by the Bitcoin Policy Institute asserts that Bitcoin has the potential to support financial stability.
In conclusion, evaluations of the opportunities and potential risks that Bitcoin offers for financial markets and central banks may play a significant role in shaping future economic strategies.
