By Karishma Fanjani; Source: Barron's
Deutsche Bank strategists say that by 2030, Bitcoin, the world's most important cryptocurrency, could appear on central bank balance sheets, just like gold and the US dollar.
Central banks hold reserve assets—such as US Treasury bonds, gold, and various currencies—primarily for managing exchange rates, repaying foreign debt, and serving as emergency reserves. The yield of the assets themselves is less important; central banks prioritize their high liquidity and ability to maintain value during times of financial stress.To date, Bitcoin has not met the requirements to become a reserve asset due to its lack of physical backing, high price volatility, and illiquidity. However, Deutsche Bank's Marion Laboure and Camilla Siazon believe that Bitcoin now "almost meets" the characteristics of a reserve asset. One reason is that Bitcoin's price performance since 2012 bears many similarities to gold's performance since 1920. Both gold and Bitcoin have experienced periods of volatility and underperformance during these periods. Like gold, Bitcoin's volatility has decreased despite its price increase. Deutsche Bank attributes this in part to the growing number of institutions holding the currency. In recent months, gold and Bitcoin have risen in tandem, both reaching record highs. Deutsche Bank also points to other similarities between the two, including limited supply, low correlation with other asset classes, and the ability to serve as a hedge against inflation. Rapporteur and Siazon suggest that increased Bitcoin liquidity—thanks to the U.S. approval of a spot Bitcoin ETF in 2024—could also make the currency more attractive to central banks. So far this year, the iShares Bitcoin Trust ETF has seen net inflows of $25 billion, while the SPDR Gold ETF has seen net inflows of $15 billion. However, despite this, Bitcoin's $2.45 trillion market capitalization still pales in comparison to the nearly $30 trillion in U.S. Treasury bonds. By comparison, gold's market capitalization is currently estimated at between $26 trillion and $28 trillion, not including unmined reserves. Meanwhile, governments are becoming more welcoming toward cryptocurrencies, including Bitcoin. Deutsche Bank notes that companies like Strategy, Marathon Digital, and Trump Media & Technology Group have also added Bitcoin to their reserve assets. El Salvador, the first country to designate Bitcoin as legal tender, is often cited as an example of growing government acceptance of the currency. The country holds nearly $800 million worth of Bitcoin, but actual usage remains low. According to the International Monetary Fund (IMF), only approximately 1.75% of remittances to El Salvador were made via crypto wallets over the past year, highlighting the challenges facing wider adoption of Bitcoin. Currently, Bitcoin is still a long way from being recognized by major central banks around the world. Both the Federal Reserve and the European Central Bank have made it clear that they will not include Bitcoin in their balance sheets. The World Bank also pointed out in a blog post at the end of last year that crypto assets fail to meet the basic requirements of being a reserve asset.