365Crypto
The head of the Czech National Bank (CNB), Aleš Michl, is pushing for the central bank to invest billions of euros from its reserves into Bitcoin (BTC)—a move that could make it the first Western central bank to hold cryptocurrency.
Key Highlights
- Proposed Investment: Michl plans to present a proposal to the CNB board, aiming to allocate up to 5% of the bank’s €140 billion in reserves into Bitcoin.
- Diversification Strategy: The governor sees Bitcoin as a valuable asset in a diversified portfolio, despite its high volatility.
- Influence of U.S. Policies: Michl cited increasing institutional adoption, including Bitcoin ETFs and former U.S. President Donald Trump’s pro-crypto stance, as reasons for the move.
- Risk Acknowledgment: While bullish, Michl admits Bitcoin could go to zero but argues that all investments carry risk.
Breaking Away from Traditional Central Banking
Most central banks keep their reserves in U.S. Treasuries, high-rated bonds, and equities, avoiding volatile assets like Bitcoin. Michl’s approach is a sharp contrast to traditional policies:
- The European Central Bank (ECB) has dismissed Bitcoin, stating its “fair value is still zero.”
- The Bundesbank Governor compared Bitcoin to “digital tulips”, referencing the 17th-century speculative bubble.
- In the U.S., Federal Reserve Chair Jerome Powell confirmed the Fed does not hold Bitcoin, and no law changes are expected to allow such purchases.
Czech Bank’s Unique Investment Philosophy
The CNB already holds 22% of its reserves in equities, an unusual strategy for a central bank. Michl wants to increase U.S. stock holdings to 50% over the next three years, seeing Bitcoin as another key diversification tool.
If the CNB had held 5% of its reserves in Bitcoin over the past decade, its annual returns would have increased by 3.5 percentage points—but volatility would have doubled.
Could Other Central Banks Follow?
Michl predicts that within the next five years, other central banks may follow suit, just as hedge funds, pension funds, and commercial banks have recently entered crypto markets.
El Salvador remains the only sovereign entity that actively holds Bitcoin, with 6,048 BTC ($621M) in its treasury. However, the country scaled back its Bitcoin push in late 2024 to secure an IMF funding deal.
Interest Rate Outlook & Czech Euro Adoption Debate
- CNB Rate Cuts Expected: Michl signaled a 25 basis point rate cut from 4% next week, continuing a trend started in December 2023.
- Czech Koruna vs. Euro: Despite calls from President Petr Pavel to adopt the Euro, Michl remains opposed, arguing that an independent currency helps fight inflation and maintain monetary policy control.
Market Impact
If approved, a major Bitcoin buy by a central bank could have significant market effects, as even a 5% reserve allocation from the CNB would represent a large inflow into Bitcoin.
This bold move signals shifting attitudes toward crypto among traditional financial institutions and could pave the way for further Bitcoin adoption in central banking.
