Central Banks Should Study Bitcoin, Not Avoid It, Says Czech National Bank Chief

The Czech National Bank (CNB) is considering studying Bitcoin (BTC) as part of its reserve management strategy, according to the bank’s governor Aleš Michl.

Central banks should not dismiss Bitcoin outright but instead analyze its underlying technology and potential role in financial reserves, Michl stated in a Feb. 19 X post, adding:

“It should not be lumped together with other crypto assets. We central bankers should study it and explore the technology it is built on. Studying Bitcoin won’t harm us – on the contrary, it will strengthen us.”

Michl’s post follows nearly three weeks after he presented the creation of a Bitcoin test portfolio during the CNB’s bank board meeting on Jan. 30.

He clarified that this initiative is not an endorsement of Bitcoin as a primary reserve asset but rather an effort to understand its risks, volatility, and potential benefits.

Bitcoin Update:
I’ll start broadly: if you intend to invest in crypto assets, exercise extreme caution. The market is still in its infancy. I remember the 1990s in our country, when the transition from socialism to capitalism saw the birth and simultaneous collapse of many… https://t.co/UxGF0R7NwO

— Aleš Michl (@MICHLiq_) February 19, 2025

Bitcoin’s Volatility Raises Questions

Although the CNB has not committed to purchasing Bitcoin, the bank board has approved an analysis of additional asset classes, including Bitcoin. The central bank will evaluate its feasibility, risk factors, and long-term potential as part of CNB’s reserve management strategy.

Michl acknowledged Bitcoin’s extreme volatility, noting that its future value could range from zero to a significant amount.

If the CNB were to allocate 5% of its €140 billion (around $146 billion) in reserves to Bitcoin, the move could make it the first Western central bank to publicly invest in the cryptocurrency. However, sources suggest that any potential exposure would be much smaller, likely below 1% of total reserves.

Michl made a clear distinction between Bitcoin and other cryptocurrencies, warning investors to exercise extreme caution when dealing with crypto assets.

Comparing the current crypto landscape to the economic transition of the 1990s in the Czech Republic, he noted that many investment funds emerged and collapsed during that period. “The crypto asset market will experience similar failures and successes,” he said, advising investors to only put money into assets they fully understand and can afford to lose.

ECB President Rejects Bitcoin as a Reserve Asset

However, while Michl has advocated for the study of Bitcoin, other European central bankers remain cautious about its role in official reserves.

Joachim Nagel, governor of the Deutsche Bundesbank, Germany’s central bank, has been vocal about the risks associated with cryptocurrency investments.

Earlier this month, Nagel compared the leading cryptocurrency to “digital tulips,” referring to the speculative bubble and subsequent collapse in the 17th century Netherlands. In an interview for PLATOW Brief, Nagel said that reserve assets need to be “safe, liquid and transparent,” stating that “Bitcoin is none of those things.”

On Jan. 30, European Central Bank (ECB) President Christine Lagarde rejected Michl’s suggestion of including Bitcoin in the Czech Republic’s official reserves. She stated that Bitcoin fails to meet the ECB’s criteria for reserve assets, which prioritize liquidity, security, and stability.

🏦 ECB President Christine Lagarde has rejected Bitcoin as a reserve asset, citing concerns over liquidity and security.#ECB #Blockchain #BitcoinReservehttps://t.co/HSlApHCjfg

— Cryptonews.com (@cryptonews) January 30, 2025

While the Czech Republic does not use the euro, it is part of the EU and therefore its central bank sits on the ECB’s General Council, which is also chaired by Lagarde and advises member states on financial policy.

Despite the skepticism, Michl believes that central banks should remain open to financial innovation. In a Jan. 29 interview with the Financial Times, he noted that CNB’s portfolio diversification strategy already includes equities, which was once considered unconventional for a central bank.

His broader vision includes gradually increasing CNB’s investment in US stocks, with the aim of raising their share to 50% of the bank’s equity portfolio within the next three years, up from the current 30%.