Buy BTC for 7 billion euros? Forward-looking proposals and challenges of the Czech central bank reserve assets

On January 7, 2025, Aleš Michl, President of the Czech National Bank, proposed a groundbreaking proposal to include Bitcoin (BTC) in the national foreign exchange reserve assets. This proposal not only sparked widespread discussion at the Czech Republic but also demonstrated the potential of cryptocurrencies as a central bank reserve asset, and is attracting more and more attention. Globally, El Salvador, as the first country to use Bitcoin as a fiat currency, has reached 6,068 Bitcoin reserves and a market value of more than US$554 million, fully demonstrating the potential of Bitcoin as a reserve asset. In addition, MicroStrategy, one of the world's largest Bitcoin holding institutions, currently holds nearly 480,000 Bitcoins with a market value of approximately US$31.1 billion. These measures provide strong support for Bitcoin to enter the capital market.

If the Czech Republic proposal is implemented, it is expected to use approximately 7 billion euros to purchase 70,000 bitcoins, which will make the Czech Republic the world's third largest Bitcoin holder, second only to the United States and China, further promoting Bitcoin as a global reserve. Asset recognition.

The proposal may have far-reaching impact on European crypto markets, especially as major economic powers such as France and Germany are experiencing political turmoil. In 2024, France may re-examine the potential of crypto assets and may relax regulation of cryptocurrencies to promote digital The development of currency. In Germany, economic slowdown, energy transformation and internal political frictions have made people's interest in crypto assets increasingly, especially in the application of green finance and blockchain technology. Germany may adjust its policies more flexibly in the future.

From a global economic perspective, since the US implemented quantitative easing policy in 2020, the Federal Reserve has injected more than $5 trillion in liquidity into the market. Although it has promoted the recovery of the US economy, it has put pressure on the European economy, and the appreciation of the euro and Imported inflation has become a prominent problem, and the eurozone inflation rate once reached a record high of 10.6% in 2022 . Against this backdrop, European countries are promoting green and digital transformation and reducing their dependence on the US dollar through crypto assets. The Czech Republic’s Bitcoin reserve proposal caters to this demand and provides new economic growth points for the Czech Republic and Europe.

However, the Czech proposal faces certain challenges, especially the strong opposition from ECB President Christine Lagarde. She believes that Bitcoin’s high volatility, lack of regulatory frameworks and may threaten financial stability, making it unsuitable as a central bank reserve asset. Despite this, since the Czech Republic has not yet joined the euro zone and its central bank has a certain degree of independence in monetary policy, the Czech Republic is still likely to break through the ECB's resistance and promote the Bitcoin reserve proposal. In addition, the Czech government recently passed a new bill that allows individuals who hold Bitcoin for more than three years to be exempt from capital gains tax, further demonstrating the Czech Republic’s friendly attitude towards cryptocurrencies and cementing its important position in crypto asset innovation.

Although the Czech proposal faces opposition from the ECB in the short term, the government 's long-term policies clearly support this trend. The Czech policy environment and support for Bitcoin will drive Bitcoin to improve its status as a reserve asset.

In the future, the market will continue to focus on several key factors: changes in the ECB's attitude, whether the Czech Republic can break through the ECB's opposition, and whether the Czech Republic can further promote policies that are conducive to crypto assets, especially policies on capital gains tax and other related ones. Law adjustment. We will continue to track these key data and policy dynamics, focusing on their impact on Bitcoin’s potential as a reserve asset. The Czech incident analysis is as follows:

1. Background Overview

On January 7, 2025, Aleš Michl, President of the Czech National Bank (CNB), proposed for the first time the strategy of considering the inclusion of Bitcoin (BTC) in foreign exchange reserves, marking that the Czech central bank may become the world's first Western central bank to hold crypto assets. The proposal has attracted widespread attention, especially in the context of increasingly valued investors around the world. On February 6 of the same year, the Czech government adopted a new bill that allowed individuals who had held Bitcoin for more than three years to be exempted from capital gains tax. This policy provides strong support for Bitcoin as a strategic asset and also shows that the Czech Republic's cryptocurrency is Currency friendly attitude. According to Michl's remarks, CNB is actively seeking to diversify reserve assets, planning to increase its gold holdings to 5% of its total assets by 2028, while also considering putting some of its foreign exchange reserves into Bitcoin.

2. Impact on the crypto market

ROI: Bitcoin has performed well since its launch, with an annual return of 130% in recent years, far exceeding gold (about 30%). In the current global economic environment, Bitcoin’s performance makes it a potential reserve asset. If more countries include Bitcoin in their reserves, it may be able to challenge the status of traditional "safe" assets such as gold. Market reaction and impact: The Czech central bank proposes to invest 5% of foreign exchange reserves (about 7 billion euros) in Bitcoin, which is equivalent to buying 70,000 Bitcoins. With the current market price of Bitcoin (about 100,000 US dollars per coin), this will make the Czech Republic the third largest Bitcoin holding country in the world, second only to the United States and China. This move may trigger market recognition of Bitcoin as a strategic asset, prompting more countries to consider including Bitcoin in their reserves. Global Trends: Previously, El Salvador and the Central African Republic had included Bitcoin in fiat currencies and in foreign exchange reserves. If the Czech Republic finally adopts the proposal, it will become the third country in the world to use Bitcoin as a reserve asset.

3. The integration of Czech Central Bank's policies and cryptocurrency

market

Since Aleš Michl became the president of the Czech National Bank in July 2022, the Czech Central Bank has adopted a tough policy to deal with inflation rates of up to 17.5%, successfully reducing it to its target level. At the same time, a series of policies have also put pressure on the Czech balance sheet.

In order to increase the rate of return on foreign exchange reserves, the central bank is promoting asset diversification, planning to increase the share investment to 30% (about half of it is US stocks) from 2024 and increase gold reserves to 100 tons, accounting for 5% of foreign exchange reserves. In addition, the central bank is exploring the inclusion of Bitcoin in its reserves to further enrich the asset portfolio and increase returns.

The Czech Republic is friendly to cryptocurrencies, with the largest Bitcoin ATM density in Prague, and some merchants have accepted Bitcoin payments. An active crypto community and an open regulatory environment make it an important market for the European crypto industry. Although the "Digital Strategy 2030" launched in 2022 does not explicitly involve cryptocurrencies, it includes support for blockchain technology, providing a favorable external environment for the central bank to adopt Bitcoin. The Czech Central Bank's diversification strategy complements the booming development of the crypto market, laying the foundation for future reserve asset innovation.

IV. Policy Assessment

1. The life of Aleš Michl, President of the Czech Central Bank

Aleš Michl has been the Governor of the Czech Central Bank since July 2022, holds a Ph.D. in finance from the University of Economics and Business of Prague and has worked as an investment strategist at several banks. He also co-founded an algorithmic asset management fund focusing on the U.S. stock market and the Czech currency market. Michl advocates monetaryism and is deeply influenced by Milton Friedman's theory. He believes that the central bank's top priority is to curb inflation and stabilize the economy by controlling the money supply. He proposed to include Bitcoin (BTC) in foreign exchange reserves, believing that Bitcoin as an emerging asset can not only diversify its reserves, but also have high returns potential, especially in the context of increasing uncertainty in global financial markets. The characteristics of the product provide a risk aversion function.

2.Aleš Michl Policy Proposal

Michl pointed out that the Czech central bank's foreign exchange reserves are too dependent on the US dollar and gold, and appear fragile in the current global economic environment. He advocates reducing dependence on traditional assets through Bitcoin diversified reserve asset portfolio. Bitcoin has an annualized return of up to 130% in recent years, making it an attractive asset class. Despite the high volatility of the Bitcoin market, Michl believes that risks can be controlled through appropriate risk management. He hopes to increase the rate of return on reserve assets by incorporating Bitcoin into foreign exchange reserves, especially to seek new growth points beyond low-yield gold and fiat currency assets.

3. Czech policy promotion and decision-making process

The board of directors of the Czech National Bank is conducting an in-depth analysis of the feasibility of Bitcoin as a foreign exchange reserve asset. Based on previous decision-making processes, the board of directors needs weeks to several months to evaluate the proposal and finally vote to decide whether to implement it. The Czech Central Bank's policies are relatively independent, which means that even when faced with external opposition, the central bank can still make decisions based on its own needs. Decisions made by the Board of Directors of the Czech National Bank usually take months according to past decision-making timelines. For example, when the Czech Central Bank decided to conduct foreign exchange intervention in 2013 to prevent deflation, the decision took about 5 months from proposal to implementation. At present, Bitcoin’s inclusion in reserve proposals is still in the analysis stage, and more time is expected to be required to complete the risk assessment.

4. The life of European Central Bank President Lagarde

Christine Lagarde is currently the President of the European Central Bank and formerly the French Finance Minister and the President of the International Monetary Fund (IMF). She has a wide influence in the global financial field, promoting financial stability, monetary policy reforms and the sustainable development of the global economy. Lagarde has always emphasized financial stability and inflation controls and led the ECB to adopt loose monetary policies, especially in response to the eurozone economic crisis. As an experienced financial leader, Lagarde is cautious about crypto assets such as Bitcoin, believing that the high volatility and lack of regulation of these assets may have adverse effects on the stability of the financial system.

5. Lagarde 's policy proposals

The Czech Central Bank's proposal for Bitcoin reserves has triggered a strong reaction from the European Central Bank (ECB). ECB President Christina Lagarde publicly expressed opposition to the inclusion of Bitcoin in reserve assets, citing the high volatility and risk of centralized holdings. She said at a press conference after the ECB interest rate resolution was announced: "I believe Bitcoin will not enter the reserves of any central bank of the General Assembly." It can be seen that her attitude is relatively tough.

Although Lagarde's opposition does not have the effect of compulsory intervention, especially when the Czech Republic has not yet joined the euro zone, the Czech central bank has strong independence in monetary policy. But his objections are relatively strong. Therefore, Lagarde's attitude may have an impact on the decision-making process of the Czech Central Bank. The Czech Central Bank will need to further evaluate the risks and potential of Bitcoin at the board level to decide whether to adopt the proposal.

Lagarde opposes the inclusion of Bitcoin in the euro zone reserve assets for five main reasons:

• High Volatility: The price of Bitcoin fluctuates dramatically, which may cause the value of central bank reserves to fluctuate significantly, thereby affecting the stability of monetary policy and the stability of the financial system.
• Risk of centralized holding: Bitcoin's circulation is uneven, and a few large investors or institutions have mastered most of the Bitcoin, which may lead to market manipulation and unfair price fluctuations, which poses a threat to the stability of central bank reserve assets. Lack of regulatory framework: Currently, cryptocurrency markets such as Bitcoin lack unified global regulation, which is susceptible to the risk of manipulation and fraud, increasing the uncertainty of central bank reserves.
• Not meeting reserve asset standards : Bitcoin does not have the stability and liquidity of traditional reserve assets, especially in extreme market conditions, and may not provide the liquidity support required by the central bank.
• Financial stability issues : Bitcoin’s high volatility may exacerbate systemic risks, especially in countries with relatively fragile economies, posing a threat to financial stability.

V. Conclusion and Outlook

The Czech National Bank proposed to include Bitcoin in foreign exchange reserves, marking a major innovation in global central banks' asset allocation. If the proposal is adopted, the Czech Republic will become one of the world's important Bitcoin holders, promoting widespread recognition of Bitcoin as a strategic reserve asset. This is expected not only to increase the reserve returns of the Czech central bank, but also to enhance the competitiveness of the Czech Republic in the global financial market.

However, the differences between Czech Central Bank President Michl and European Central Bank President Lagarde highlights the significant differences in the status of crypto assets in the international financial system. Lagarde's strong opposition may have an impact on the decision-making of the Czech Central Bank, especially in terms of monetary policy coordination and financial stability. Although the Czech Republic has strong independence in monetary policy, how to balance the high volatility of Bitcoin and the stability of reserve assets is still an important challenge facing global central banks.

However, the new bill recently passed by the Czech government - allowing individuals who have held Bitcoin for more than three years to be exempt from capital gains tax - provides strong support for Bitcoin as a strategic asset, reflecting the Czech Republic's cryptocurrency-friendly attitude .

Although the Czech proposal is subject to opposition from the ECB in the short term, whether to include Bitcoin in the reserve assets has not been determined, the Czech government's long-term policy direction clearly supports this trend. The Czech policy environment and support for Bitcoin will drive Bitcoin to continue to improve its status as a reserve asset.

As more countries begin to discuss the possibility of Bitcoin as a reserve asset, the role of cryptocurrencies as strategic assets may be further confirmed. However, how to find a balance between high volatility and reserve asset stability remains a key challenge for central banks.

Bitcoin Outlook 2025

The macro background and the strong position of Bitcoin will be expected to remain strong in the next two years, and Bitcoin, as a "digital gold", will continue to benefit from the loose environment of US dollar liquidity. In the first half of 2025, the US Treasury Department released about $700 billion in reserve funds will drive up market liquidity and support risky assets such as Bitcoin. Although Europe and the United States gradually resolve supply-side problems, global inflation pressure still exists, and Bitcoin's anti-inflation attributes will attract more institutional and individual investors. The approval and growth of Bitcoin ETFs in 2024 have laid a solid foundation for them. It is expected that Bitcoin ETFs will surpass gold in 2025 and become an important choice for mainstream asset allocation.

Buying volume and price increase is estimated to see a large inflow of institutional funds after the launch of the Bitcoin ETF in 2024, and this trend is expected to accelerate in 2025. According to Bloomberg data, the asset management scale of Bitcoin ETFs (AUM) has exceeded US$50 billion in 2024 and is expected to reach more than US$100 billion in 2025. The participation of retail investors will also increase, with the number of users on mainstream exchanges expected to increase by 20%-30%, pushing Bitcoin’s average daily trading volume to exceed US$50 billion. In addition, after the Bitcoin halving in 2024, miners' selling pressure has dropped significantly. It is expected that miners' holdings will remain below 1 million BTC in 2025, further reducing market supply. Bitcoin’s halving cycle every four years has usually been accompanied by a sharp rise in price. After the halving in 2024, the 2025 Bitcoin price is expected to replicate the bull market performance in 2017 and 2021. According to historical data, the price increase of Bitcoin usually ranges from 300% to 500% within 12-18 months after the halving. Technically, Bitcoin’s long-term support is around $30,000, and the liquidity easing environment in the first half of 2025 may push Bitcoin to break through $100,000, or even challenge the all-time high of $150,000. According to Glassnode data, the number of active addresses and holdings on the Bitcoin chain continues to grow, and market sentiment is biased towards optimism. It is expected that the Bitcoin price increase in 2025 will be between 150% and 200%, and the target price range at the end of the year is US$120,000-150,000.

Potential catalysts and risks The integration of AI and blockchain, geopolitical risks and the acceleration of global compliance will become catalysts for Bitcoin’s rise. However, policy uncertainty (such as the U.S. debt ceiling issue) and black swan events (such as the Japanese yen system crisis) may trigger market volatility. In summary, 2025 will be a key year for Bitcoin, and macro liquidity, institutional capital inflows and technical support will jointly drive its price to rise sharply. Bitcoin is expected to increase by 150%-200% throughout the year, with a target price range of US$120,000-150,000. Investors can focus on the beta market window in the first half of the year, and be prepared for a defensive counterattack throughout the year.