A research paper published by Harvard University urges central banks to buy Bitcoin BTCUSD.
as a defense against sanctions from other countries.
The paper titled “Hedging Sanction Risk: Cryptocurrency in Central Bank Reserves” was written by a Ph.D. candidate Matthew Ferranti of the Harvard Economics Department, and compares central bank gold holdings to potential holdings of bitcoin.
Ferranti notes that central banks around the world should consider holding bitcoins as insurance against possible financial sanctions. He cites the unprecedented financial sanctions imposed on Russia by the United States and many Western countries after its invasion of Ukraine — billions of dollars worth of Russian assets were frozen after the start of the war in Ukraine.
“The risk of sanctions could reduce the attractiveness of U.S. Treasuries, encourage wider diversification of central bank reserves, and bolster the long-term fundamental value of both cryptocurrencies and gold,” Ferranti wrote.
In the article, Ferranti says that El Salvador is a model for central banks holding bitcoin. The country, led by bitcoin bull Naib Bukele, has acquired millions of dollars worth of cryptocurrencies and even made bitcoin its official national currency.
Read also: “We just bought a dip”: El Salvador expands Bitcoin stocks
Since the advent of popular cryptocurrencies such as Bitcoin and ETHUSD,
part of its appeal was the lack of involvement of central banks in favor of the decentralized nature of the digital asset.
With the recent crypto winter and the collapse of popular crypto exchange FTX, as well as the financial woes of crypto companies Voyager and Celsius, some crypto bulls have called for increased regulation and transparency in the industry.
The paper comes after FTX ran into liquidity problems in November, which eventually led to a bankruptcy filing. Sam Bankman-Fried stepped down as CEO and later apologized for the collapse of his former company.
See: Why do people invest in cryptocurrencies? “It’s part fraud, part delusion,” says Charlie Munger.
See also: Tom Brady, Steph Curry and Kevin O’Leary to suffer big losses due to FTX bankruptcy filing.
The price of bitcoin has dropped over 70% over the past year, while the price of ether has also dropped over 70% over the same period. The total market capitalization of all cryptocurrencies almost reached $3 trillion during part of 2021 but is now around $800 billion.