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Gold may not be the answer for all central banks, according to the report.
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The digital asset meets the same store of value and hedging properties as gold.
According to a group of researchers at the Bitcoin Policy Institute, central banks should adopt bitcoin (BTC) as a reserve asset, occupying an important place alongside gold.
As the most recent report from this institution points out, BTC is a suitable asset for central banks to can protect themselves against rising inflationgeopolitical risks, capital control risks, sovereign default, bank failures and international sanctions that the United States government may impose.
Regarding this, economist Matthew Ferranti, author of the article, argued that due to the weak correlation that exists between the digital currency and other financial instruments, “bitcoin is an effective portfolio diversifier.” A role that may be fulfilled as BTC returns are driven by macroeconomic forces different from those that influence other reserve assets.
To this end, the researchers set out to analyze how the publication of economic news influenced the volatility of bitcoin. The results indicated that the digital currency is not linked with any type of macroeconomic news, except those related to inflation.
Researchers were especially puzzled by the lack of relationship between interest rates and bitcoin prices. Looking beyond price variance, the total volatility of a reserve portfolio containing a small BTC allocation is primarily determined by Bitcoin’s correlation with the inflation rate.
Bitcoin Policy Institute Report.
Taking into consideration the previous observations, the study concludes that the digital asset meets the same store of value and coverage properties as goldserving as a hedge against the rapid depreciation of fiat currencies.
«Before the COVID-19 pandemic, the correlations between Bitcoin and other reserve assets were close to zero. But during the pandemic, the Bitcoin-asset correlation increased,” the study notes. However, they observe that this increase was mainly caused by growing institutional investment“whose participation in Cryptocurrency markets has likely contributed to reducing cryptocurrency volatility since the creation of Bitcoin.”
Still, they note that the Bitcoin-stock correlation decreased after the pandemic. They stand out. Additionally, one of the advantages of Bitcoin as a reserve asset is that no risk of non-payment“since it does not represent a claim on future cash flows, unlike bonds or stocks.” This is because the Mining process guarantees the security of the network.
Hence, bitcoin is considered to have some unique investment characteristics that could help central banks diversify against various risks, including liquidity. Something that makes BTC a reserve asset as powerful as gold.
Based on the above, the document also echoed the calls made to US presidential candidates and legislators to establish Bitcoin as a reserve asset strategic of the United States Department of the Treasury.
A proposal that was raised a few months ago by former president and Republican candidate Donald Trump, as part of his campaign promises. And that is also part of a bill presented by Senator Cynthia Lummis. As CriptoNoticias has reported, although there are still those who see the proposal as unrealistic and difficult to carry out in the short term, the debate for its implementation is open.
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