Czech Central Bank Considers Converting 5 Percent of Reserves to Bitcoin
The head of the Czech National Bank (CNB) plans to propose investing billions of euros from the country's reserves into bitcoin, potentially becoming the first western central bank to hold cryptocurrency assets. Governor Aleš Michl will present this plan to the bank's board at an upcoming Thursday meeting.
The proposed investment could see up to 5 percent of the CNB's €140 billion reserves allocated to bitcoin. This would represent a significant departure from traditional central bank investment strategies, which typically focus on conservative assets like government bonds and, in some cases, equities.
Michl, drawing from his background as an investment fund manager, expressed confidence in bitcoin's potential as a diversification tool. He noted the recent market developments, including the launch of bitcoin ETFs by major firms like BlackRock, as factors supporting his decision. The CNB's analysis suggests that if it had maintained 5 percent of its foreign reserves in bitcoin over the past decade, its annual returns would have increased by 3.5 percentage points, though with doubled volatility.
The move stands in stark contrast to the positions of other major central banks. Federal Reserve Chair Jay Powell confirmed in December that the US central bank holds no bitcoin, as it falls outside Congress-approved assets. European Central Bank officials have been particularly critical, stating last year that "the fair value of bitcoin is still zero" and deeming it unsuitable for investment or payments.
The CNB already maintains an unconventional portfolio structure, with 22 percent of its assets in equities. Michl aims to increase the US stock portion to 50 percent of equity holdings within three years, up from the current 30 percent. He acknowledged the risks associated with bitcoin investment, comparing potential losses to historical cases like Enron and Wirecard.
Looking ahead, Michl predicts that other central banks might follow the CNB's lead within five years, following the pattern of commercial banks and pension funds that have recently added crypto to their portfolios. However, he remains realistic about the risks, noting that bitcoin's future value could range from zero to "absolutely fantastic."
