The Czech National Bank (CNB) could become the first Western central bank known to allocate a portion of its reserves to Bitcoin (CRYPTO: BTC).
What Happened: Governor AleÅ¡ Michl, breaking from traditional financial dogma, plans to present a bold proposal at this Thursday’s board meeting to invest billions of euros into the digital asset, according to the Financial Times.
Should his plan be approved, the CNB could allocate as much as 5% of its substantial €140 billion ($145 billion) reserves to Bitcoin, signifying a radical departure from conventional reserve strategies.
Michl, who is a former investment banker, acknowledged Bitcoin’s notorious “extreme volatility,” but highlighted the recent surge in broader investor interest, including the new Bitcoin exchange-traded funds launched by major financial firms like BlackRock.
He further mentioned Donald Trump's public statements on deregulation and his administration’s increasing embrace of cryptocurrencies as contributing factors to the bank's interest.
In addition, Trump’s recent executive order to explore a national digital asset stockpile further supported the CNB’s decision-making process.
“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,” he said.
This move stands in sharp contrast to the policies of other central banks, who are historically wary of the asset class, and are preferring to park their reserves in traditional and more conservative assets like US Treasuries and highly-rated bonds.
Federal Reserve Chair Jay Powell confirmed that the U.S. central bank does not hold Bitcoin as it is not on the list of assets that it is allowed to purchase.
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Michl stated, "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."
Why It Matters: Other central bankers have expressed alarm at this, like Bundesbank governor Joachim Nagel, who recently compared Bitcoin to "digital tulips."
Some members of the European Central Bank (ECB) have declared that "the fair value of bitcoin is still zero" and added that "Bitcoin is not suitable as means of payment or as an investment."
El Salvador has been one of the very few countries that has embraced crypto, but even they scaled back their ambitions after reaching a funding agreement with the IMF.
Michl believes his lead will be followed by many other central banks in the next five years, just as many major commercial banks and hedge funds have also started to enter the crypto space.
He also acknowledged that it is completely possible for Bitcoin to fall to a value of zero, stating “It’s possible to have a big range of outcomes, that bitcoin will have a value of zero or an absolutely fantastic value.” He did however state that “my goal is to diversify the portfolio, so if Bitcoin is good [for that], then let's have it."
He added that if the Czech Republic had held 5% of its reserves in Bitcoin over the past decade, their returns would have increased by an additional 3.5 percentage points annually but would have also doubled the portfolio's overall volatility.
The CNB has a current equity allocation of 22%, which is also outside of traditional central bank policies and they are looking to raise this allocation in U.S. equities in the near future as well.
The Czech Republic, which is one of the few countries that has chosen to stay outside of the Eurozone, recently saw their President promote the idea of a switch to the euro for increased prosperity.
Michl dismissed this idea due to the lack of price convergence and public support.
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