A research paper published by Harvard University highlights how central banks can use Bitcoin.BTC) to protect themselves from financial penalties of issuers of trust reserves.
A working paper titled “Hedging Sanctions Risk: Cryptocurrency in Central Bank Reserves”, published Matthew Ferranti, a PhD candidate in the University’s Department of Economics, explored the potential of Bitcoin as an alternative hedging asset for central banks to combat potential sanctions.
Ferranti said it makes sense for central banks to hold a small amount of Bitcoin even under normal circumstances. However, with the threat of sanctions, the researcher said it makes sense to hold a larger portion of BTC alongside your gold reserves.
The researcher also noted this in the document Countries that were at risk of US sanctions increased their share of gold reserves much more than countries that were at lower risk of sanctions. If these central banks cannot acquire enough gold to cover the risk of sanctions, the researcher said that Bitcoin reserves are the optimal alternative.
In addition, the scientist believes that the risk of sanctions can lead to the diversification of central bank reserves, strengthen the value of cryptocurrencies and gold. Ferranti concluded that there are significant benefits to stock diversification and allocation to both Bitcoin and gold.
Digital strategists at Bank of America (BofA) highlighted that the rising correlation between BTC and gold is an indicator investor confidence in Bitcoin during the current economic downturn. In addition, Bank of America strategists believe that the increase in standalone assets also points to a potential reduction in selling pressure.
While self-custody began to emerge during the FTX exchange crash, some in the community argued that it was not without risk. From smart contract bugs to loved ones accessing crypto assets after death, community members indicated potential problems can arise when people choose to protect their digital assets themselves.
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