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By Joseph Moss, International Banker
On November 13, the Czech National Bank (CNB) confirmed that it had purchased $1 million in digital assets, including bitcoin, a USD (United States dollar) stablecoin and a tokenised deposit, with the aim of gaining practical experience in holding blockchain-based assets. The announcement came at a time when concerns over the stability and credibility of traditional reserves—namely, the US dollar—have escalated dramatically among many of the world’s central banks, spurring intense demand for safe-haven assets such as gold. And with leading analysts increasingly suggesting that bitcoin could also qualify as a reserve asset in the coming years, we may well see the world’s most dominant cryptocurrency on central banks’ balance sheets before too long.
It is no secret that central banks have been instrumental in repeatedly driving gold to new all-time highs in recent months. With record-breaking rallies also notched up for silver and platinum, precious metals have been buoyed by considerable safe-haven demand. Such trends should come as little surprise when one considers how frequently central banks—particularly those in emerging markets and developing nations—have expressed their reservations over the US dollar, as its reserve-currency status comes under growing threat amid alarming levels of American public debt and escalating geopolitical turbulence. During such uncertain and even fearful times, therefore, many are opting for the safety offered by gold to diversify their reserve holdings.
In August, Invesco published a study finding that not only did 64 percent of central banks intend to increase their reserve levels, but 53 percent planned to further diversify their holdings, with the dollar’s long-term stability—or lack thereof—a chief motivating factor. “This year’s study shows that 72 percent of central banks believe US fiscal dynamics are negatively impacting the dollar’s long-term outlook, a notable increase from last year’s 64 percent,” the research noted. “Central banks regularly flagged worries that persistent fiscal deficits, combined with political gridlock, could eventually undermine confidence in the dollar’s value and erode its safe-haven status.”
Against this backdrop, it appears that central banks are also gradually mulling the potential role that digital assets could play in any such diversification strategy, with the CNB seemingly taking the lead. Governor Aleš Michl initially touted bitcoin for such a role at the start of 2025, submitting a proposal to the bank’s board to invest in the digital currency as a way to diversify foreign-exchange reserves.
“For the diversification of our assets, bitcoin seems good. Those [Trump] guys can now kind of create some bubble for bitcoin, but I think the trend would be an increase without those guys as well, because it’s an alternative [investment] for more people,” Michl said in an interview with the Financial Times in January 2025. “Of course, if you compare my position with other bankers, then I’m the one entering the jungle, or the pioneer. I used to run an investment fund, so I’m a typical investment banker, I would say; I like profitability.”
According to the bank, bitcoin will be held separately from its pool of international reserves and will not be actively increased; the portfolio’s primary objectives will be to gain “practical experience” with holding digital assets and to implement and test the necessary related processes. “In the test portfolio, the central bank will test the whole chain of processes associated with the purchase, holding and management of digital assets—from technical administration of keys and multi-level approval processes, through crisis scenarios and security mechanisms, to verifying anti-money-laundering compliance,” the bank stated.
Michl also acknowledged that the bank is keen to remain abreast of new and emerging payment and investment methods. “It is realistic to expect that, in the future, it will be easy to use the crown to buy tokenised Czech bonds and more besides—with one tap an espresso; with another an investment such as a bond or another asset that used to be the preserve of larger investors,” the governor explained in the statement. “As a central bank, we want to test this path.”
Could more central banks follow in the CNB’s footsteps? According to Deutsche Bank, more national monetary institutions could well hold bitcoin alongside gold by the end of the decade, with a study published by the bank’s analysts Marion Laboure and Camilla Siazon in September arguing that across key reserve criteria such as volatility, liquidity, strategic value and trust, there is room for both assets to coexist on central banks’ balance sheets within the next five years.
“A strategic Bitcoin allocation could emerge as a modern cornerstone of financial security, echoing gold’s role in the 20th century. Today, gold is universally recognised for its scarcity, liquidity, and lack of counterparty risk. It tends to exhibit a negative correlation with risk assets, especially during systemic crises,” the paper noted. “As of Q1 2025, central banks held ~36,000 tonnes of gold, comprising around 20 percent of overall annual gold demand. Bitcoin shares several characteristics with the precious metal, including high liquidity, limited supply, lack of counterparty risk and limited correlation to traditional assets.”
The study cites five key factors to support its view:
- Bitcoin and gold are complementary diversifications to central banks’ portfolios, due to their (i) low correlation with other asset classes, (ii) relatively scarce supply and (iii) use as a hedge against inflation and geopolitical volatility.
- Bitcoin’s volatility should decline as regulatory efforts—from the United States’ GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) to the European Union’s (EU’s) Markets in Crypto-Assets (MiCA) and the Financial Conduct Authority’s (FCA’s) crypto roadmap in the United Kingdom—continue to accelerate and more transactions are conducted, ensuring deeper liquidity in the markets.
- Neither bitcoin nor gold is likely to replace the US dollar as the primary reserve asset or means of payment.
- History appears to be repeating itself, with gold once similarly subject to scepticism, suspicion and demand speculation. “We believe that Bitcoin adoption will continue, as regulatory developments, macroeconomic conditions and—above all—time should enable the public to increasingly embrace Bitcoin as a store of value,” the paper noted.
- So long as we are human, bitcoin and other alternative assets will likely continue to compete for our attention.
Nonetheless, several risks associated with bitcoin will continue to undermine any immediate role as a reserve asset, the main factor arguably being its pronounced volatility, which the authors argue could prevent its value from rising consistently over the long term. “Since the crypto first gained traction in the 2010s, it has seen huge upswings that were later associated with significant drawdowns. These drawdowns have been frequent: 19 episodes of more than 20 percent drawdown with an average magnitude of 44 percent and lasting 123 days,” the Deutsche study warned.
Bitcoin still struggles to gain traction in payments for goods and/or services, with Laboure and Siazon estimating that less than 30 percent of transactional activity is accounted for by crypto, while Deutsche research in April found that 44 percent of respondents surveyed in the United States cited cryptocurrency’s excessive riskiness as the main barrier preventing its wider use. As such, they view bitcoin as more strongly correlated with small-cap equities, which lends credence to the argument that it is a speculative “risk-on” asset.
It should also be noted that the majority of leading central banks continue to view bitcoin with more than a healthy dose of scepticism. The European Central Bank (ECB), for instance, previously argued that “the fair value of bitcoin is still zero” and that the digital asset “is not suitable as [a] means of payment or as an investment”. ECB’s president, Christine Lagarde, has also quelled speculation that the bank may hold bitcoin as a reserve asset in the near future. “Reserves have to be liquid, secure, and safe,” the ECB president said in January 2025, claiming that bitcoin’s volatility and potential risks linked to money laundering and illicit activities meant that it did not satisfy such criteria. And former ECB official Benoît Cœuré even went so far as to label bitcoin the “evil spawn of the financial crisis”.
As for the Federal Reserve (the Fed), the US central bank has expressed no desire to be involved in efforts to hold bitcoin. “We’re not allowed to own bitcoin,” Chair Jerome Powell said following a December 2024 Federal Open Market Committee (FOMC) meeting. In terms of the legal issues around holding bitcoin, “that’s the kind of thing for Congress to consider, but we are not looking for a law change at the Fed.”
