Bitcoin as a central bank reserve asset

This article analyses Bitcoin’s suitability as a central bank reserve asset. The article presents a qualitative and quantitative analysis of the security, safety and liquidity of Bitcoin compared to the established reserve assets gold and US Treasury bonds. Bitcoin’s role as a risk diversifier in central bank reserve portfolios is assessed for US and Australian reserve portfolios. The analysis reveals that Bitcoin meets some of the required criteria for a central bank reserve asset but not all. Bitcoin is clearly less stable and less liquid than gold and US government bonds. However, a portfolio analysis further shows that small allocations of Bitcoin reduce the risk of reserve portfolios both in normal times and in times of stress. JEL code: E58, F31, G11