Bitcoin, the world’s largest cryptocurrency, could join gold and the U.S. dollar on central banks’ balance sheets by 2030, according to strategists at Deutsche Bank.
Central banks hold reserve assets—think U.S. debt, gold, and currencies—to manage exchange rates, pay off external debt, and have a cushion for emergency use. The returns aren’t important. What banks want is assets that are highly liquid and that hold their value when the financial system comes under strain.
So far, Bitcoin, which is backed by nothing, has been too volatile and illiquid to qualify. But Deutsche Bank’s Marion Laboure and Camilla Siazon argue that Bitcoin is now “almost there” as a reserve asset. Part of the picture is that Bitcoin’s price since 2012 has traced a path similar to moves in gold since 1920.
Both gold and Bitcoin underwent periods of volatility and underperformance during those periods. Just like gold, Bitcoin has seen its volatility fade even as the price has risen. Part of the reason is that more institutions are holding the currency, the bank says.
In recent months, gold and Bitcoin have rallied together, reaching record levels. Other similar traits include having a fixed supply, a low correlation with other asset classes, and a use as a hedge against inflation, the bank says.
Bitcoin’s growing liquidity, the result of the U.S.’s approval of spot Bitcoin exchange-traded funds in 2024, could also make the currency more appealing to central banks, Laboure and Siazon say. The iShares Bitcoin Trust ETF has seen a net inflow of $25 billion so far this year, compared with $15 billion for the SPDR Gold Shares.
That said, Bitcoin’s market value at $2.45 trillion is still small in comparison to the nearly $30 trillion worth of U.S. Treasuries outstanding. The market value of gold is around $26 trillion to $28 trillion, not including deposits that have yet to be mined.
At the same time, governments are treating cryptocurrencies including Bitcoin more favorably, and corporations such as Strategy, Marathon Digital and Trump Media & Technology Group are holding Bitcoins in their reserves, Deutsche Bank writes.
El Salvador, the first country to adopt Bitcoin as legal tender, is often cited as an example of growing government acceptance of Bitcoin. The country has nearly $800 million worth of Bitcoin holdings, but usage remains low. Only about 1.75% of remittances to El Salvador were made using a crypto wallet during the past year, according to the International Monetary Fund.
That highlights the challenge of broader adoption.
Bitcoin remains far from receiving a seal of approval from the biggest central banks. The Federal Reserve and European Central Bank have both rejected keeping Bitcoin on their balance sheets. In a blog post late last year, the World Bank concluded that crypto assets fall short of meeting the basic requirements for reserve assets.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.
