7 billion euros to buy BTC? Forward-looking proposals and challenges for the Czech central bank's reserve assets

Here is the English translation of the text, with the specified terms translated as instructed: On January 7, 2025, Aleš Michl, the Governor of the Czech National Bank (CNB), proposed a groundbreaking initiative to include Bitcoin (BTC) in the country's foreign exchange reserves. This proposal has sparked widespread discussion both within the Czech Republic and globally, highlighting the potential of cryptocurrencies as central bank reserve assets, which is receiving increasing attention. Globally, El Salvador, the first country to adopt Bitcoin as legal tender, has already accumulated 6,068 Bitcoins in its reserves, worth over $554 million, fully demonstrating the potential of Bitcoin as a reserve asset. Furthermore, MicroStrategy, one of the largest Bitcoin holders globally, currently holds nearly 480,000 Bitcoins, worth approximately $31.1 billion, providing strong support for Bitcoin's entry into the capital markets. If the Czech proposal is implemented, it is estimated that around €7 billion will be used to purchase 70,000 Bitcoins, making the Czech Republic the third-largest Bitcoin holder globally, after the United States and China, further promoting the recognition of Bitcoin as a global reserve asset. This proposal may have far-reaching implications for the European crypto market, especially as major economic powers like France and Germany are experiencing political turmoil. In 2024, France witnessed large-scale protests due to pension reforms and high tax burdens, which exacerbated distrust in the traditional financial system, and France may re-evaluate the potential of crypto assets and potentially relax regulations on cryptocurrencies to promote the development of digital currencies. In Germany, economic slowdown, energy transition, and internal political frictions have increased public interest in crypto assets, particularly in the application of green finance and blockchain technology, and Germany may become more flexible in adjusting its policies in the future. From a global economic perspective, the Federal Reserve has injected over $5 trillion in liquidity into the market since implementing quantitative easing policies in 2020, which has facilitated the recovery of the US economy but has put pressure on the European economy, with the appreciation of the Euro and imported inflation becoming prominent issues, with the Eurozone inflation rate reaching a historic high of 10.6% in 2022. Against this backdrop, European countries are promoting green and digital transformations and reducing their dependence on the US dollar through crypto assets, and the Czech Republic's Bitcoin reserve proposal aligns with this demand, providing a new driver for economic growth in the Czech Republic and Europe. However, the Czech proposal faces certain challenges, particularly the strong opposition from Christine Lagarde, the President of the European Central Bank (ECB). She believes that Bitcoin's high volatility, lack of regulatory framework, and potential threat to financial stability make it unsuitable as a central bank reserve asset. Nevertheless, as the Czech Republic has not yet joined the Eurozone, its central bank has a certain degree of independence in monetary policy, and the Czech Republic may still be able to overcome the ECB's resistance and push forward the Bitcoin reserve proposal. Furthermore, the Czech government recently passed a new law exempting individuals who have held Bitcoin for more than three years from capital gains tax, further demonstrating the Czech Republic's friendly attitude towards cryptocurrencies and consolidating its important position in crypto asset innovation. Although the Czech proposal currently faces opposition from the ECB, the government's long-term policy clearly supports this trend. The Czech policy environment and support for Bitcoin will drive the rise of Bitcoin as a reserve asset. In the future, the market will continue to focus on several key factors: the ECB's changing attitude, whether the Czech Republic can overcome the ECB's opposition, and whether the Czech Republic can further promote policies favorable to crypto assets, particularly regarding capital gains tax policies and other relevant legal adjustments. We will continue to track these key data and policy dynamics and focus on their impact on the potential of Bitcoin as a reserve asset.

2. Aleš Michl's Policy Proposals

Michl pointed out that the foreign exchange reserves of the Czech National Bank are too dependent on the US dollar and gold, which appears fragile in the current global economic environment. He proposes to diversify the reserve asset portfolio with Bitcoin, reducing the reliance on traditional assets. The annualized return rate of Bitcoin in recent years has reached as high as 130%, making it an extremely attractive asset class. Although the Bitcoin market is highly volatile, Michl believes that the risk can be controlled through proper risk management. He hopes to increase the return on reserve assets by including Bitcoin in the foreign exchange reserves, especially seeking new growth points outside the low-yielding gold and fiat currency assets.

3. Policy Advancement and Decision-making Process in the Czech Republic

The Board of Directors of the Czech National Bank is conducting an in-depth analysis on the feasibility of Bitcoin as a foreign exchange reserve asset. According to the previous decision-making process, the Board will take several weeks to several months to evaluate the proposal and ultimately decide whether to implement it through voting. The policy of the Czech National Bank is relatively independent, which means that even if it faces external opposition, the central bank can still make decisions based on its own needs. According to the past decision-making timeline, the decision-making of the Czech National Bank's Board of Directors usually takes several months. For example, in 2013, when the Czech National Bank decided to intervene in the foreign exchange market to prevent deflation, the decision-making process from proposal to implementation took about 5 months. The current proposal to include Bitcoin in the reserves is still in the analysis stage, and it is expected to take more time to complete the risk assessment.

4. Biography of ECB President Christine Lagarde

Christine Lagarde is the current President of the European Central Bank, and has previously served as the Finance Minister of France and the Managing Director of the International Monetary Fund (IMF). She has extensive influence in the global financial field, promoting financial stability, monetary policy reform, and the sustainable development of the global economy. Lagarde has always emphasized financial stability and inflation control, leading the European Central Bank to adopt a loose monetary policy, especially in response to the economic crisis in the Eurozone. As an experienced financial leader, Lagarde's attitude towards crypto-assets (such as Bitcoin) is cautious, believing that the high volatility and lack of regulation of these assets may have an adverse impact on the stability of the financial system.

5. Lagarde's Policy Proposals

The Czech National Bank's proposal to include Bitcoin in its reserves has provoked a strong reaction from the European Central Bank (ECB). ECB President Christine Lagarde publicly stated that she opposes the inclusion of Bitcoin in reserve assets, citing the high volatility of Bitcoin and the risk of concentrated holdings. She said in a press conference after the ECB's interest rate decision: "I believe that Bitcoin will not enter the reserves of any central bank in the Governing Council." Her attitude seems to be relatively firm.

Although Lagarde's opposition does not have the power to intervene forcibly, especially since the Czech Republic has not yet joined the Eurozone, the Czech National Bank has relatively strong independence in monetary policy. However, her opposition is quite strong. Therefore, Lagarde's attitude may have an impact on the decision-making process of the Czech National Bank. The Czech National Bank will need to further evaluate the risks and potential of Bitcoin at the Board level and decide whether to adopt this proposal.

Lagarde opposes the inclusion of Bitcoin in the Eurozone's reserve assets for five main reasons:

• High Volatility: The price of Bitcoin fluctuates violently, which may lead to significant fluctuations in the value of central bank reserves, thereby affecting the stability of monetary policy and the financial system.
• Concentration Risk: The circulation of Bitcoin is uneven, with a small number of large holders or institutions controlling most of the Bitcoin, which may lead to market manipulation and unfair price fluctuations, posing a threat to the stability of central bank reserve assets.
• Lack of Regulatory Framework: The current cryptocurrency market, including Bitcoin, lacks a unified global regulatory framework, which increases the risk of manipulation and fraud, adding uncertainty to central bank reserves.
• Not Meeting Reserve Asset Standards: Bitcoin lacks the stability and liquidity of traditional reserve assets, and may not be able to provide the liquidity support required by central banks, especially under extreme market conditions.
• Financial Stability Issues: The high volatility of Bitcoin may exacerbate systemic risk, especially in economically fragile countries, posing a threat to financial stability.

V. Conclusion and Outlook

The proposal by the Czech National Bank to include Bitcoin in its foreign exchange reserves marks a significant innovation in the global central bank asset allocation. If this proposal is adopted, the Czech Republic will become one of the world's major Bitcoin holders, promoting the widespread recognition of Bitcoin as a strategic reserve asset. This not only has the potential to increase the returns on the Czech National Bank's reserves, but also enhance the Czech Republic's competitiveness in the global financial markets.

However, the divergence between the Governor of the Czech National Bank, Michl, and the President of the European Central Bank, Lagarde, highlights the significant differences in the status of crypto-assets within the international financial system. Lagarde's strong opposition may influence the decision-making of the Czech National Bank, especially in terms of monetary policy coordination and financial stability. Although the Czech Republic has relatively strong independence in monetary policy, how to balance the high volatility of Bitcoin and the stability of reserve assets remains an important challenge for central banks around the world.

However, the recent passage of a new law in the Czech Republic - exempting individuals from capital gains tax on Bitcoin held for more than three years - provides strong support for Bitcoin as a strategic asset, reflecting the Czech Republic's friendly attitude towards cryptocurrencies.

Although the Czech proposal is currently constrained by the opposition from the ECB, whether to include Bitcoin in the reserve assets has not yet been determined, but the long-term policy direction of the Czech government clearly supports this trend. The policy environment in the Czech Republic and its support for Bitcoin will continue to promote the status of Bitcoin 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 balance high volatility and the stability of reserve assets remains a key challenge for central banks around the world.

Outlook for Bitcoin in 2025

Macroeconomic Background and the Dominant Position of Bitcoin In the next two years, US dollar assets are expected to remain strong, and Bitcoin as the "digital gold" will continue to benefit from the loose liquidity environment of the US dollar. In the first half of 2025, the release of about $700 billion in reserve funds by the US Treasury Department will boost market liquidity, providing support for risk assets such as Bitcoin. Although the US and Europe are gradually solving supply-side problems, global inflationary pressures will still exist, and Bitcoin's anti-inflation properties will attract more institutional and individual investors. The approval and growth of Bitcoin ETFs in 2024 have laid a solid foundation for it, and it is expected that the holdings of Bitcoin ETFs will surpass gold in 2025, becoming an important choice for mainstream asset allocation.

The buying volume and price increase forecast. After the launch of the Bitcoin ETF in 2024, a large amount of institutional capital will flow in, and this trend is expected to accelerate in 2025. According to Bloomberg data, the assets under management (AUM) of the Bitcoin ETF have already exceeded $50 billion in 2024, and are expected to reach over $100 billion in 2025. Retail investor participation will also increase, and the user base of mainstream exchanges is expected to grow by 20%-30%, driving the average daily trading volume of Bitcoin to exceed $50 billion. In addition, after the Bitcoin halving in 2024, the selling pressure from miners will decrease significantly, and it is expected that the miners' holdings will be maintained below 1 million BTC in 2025, further reducing market supply. The Bitcoin halving cycle, which occurs every four years, is usually accompanied by a significant price increase. After the halving in 2024, Bitcoin's price performance in 2025 is expected to replicate the bull market in 2017 and 2021. Based on historical data, the price increase within 12-18 months after the halving is usually 300%-500%. Technically, the long-term support level of Bitcoin is around $30,000, and the loose liquidity environment in the first half of 2025 may drive Bitcoin to break through $100,000, and even challenge the historical high of $150,000. According to Glassnode data, the number of active addresses on the Bitcoin blockchain and the holdings continue to grow, and the market sentiment is optimistic. It is expected that the price increase of Bitcoin in 2025 will be between 150%-200%, with a target price range of $120,000-$150,000 at the end of the year.

Potential catalysts and risks. The integration of AI and blockchain, geopolitical risks, and the acceleration of global compliance will become catalysts for the rise of Bitcoin. However, policy uncertainties (such as the US debt ceiling issue) and black swan events (such as the Yen system crisis) may cause market volatility. In summary, 2025 will be a critical year for Bitcoin, with macro liquidity, institutional capital inflows, and technical support driving a significant price increase. It is expected that the annual increase in Bitcoin's price will be 150%-200%, with a target price range of $120,000-$150,000. Investors can focus on the β market window in the first half of the year, while also preparing for a defensive counterattack throughout the year.