Galaxy: Milestone Event Czech Central Bank Purchases Bitcoin

Source: Galaxy; Compiled by Golden Finance

The Czech National Bank has purchased Bitcoin worth up to $1 million. In a statement, the Czech National Bank (CNB) said that it “has created a blockchain-based digital asset test portfolio,” which includes “test investments made in the form of US dollar stablecoins as well as tokenized deposits on the blockchain, in addition to Bitcoin.” The Czech National Bank emphasized that “this purchase does not utilize its existing international reserves” and that “the total investment will not be actively increased.”

In January this year, the Governor of the Czech National Bank, Aleš Michl, suggested that the Czech central bank could consider including Bitcoin in its reserves, with a maximum weight of 5%. The President of the European Central Bank, Christine Lagarde, opposed this, stating at a press conference that she is “convinced that Bitcoin will not enter the reserves of any member central bank of the Governing Council of the European Central Bank,” and the Czech National Bank is indeed one of the members of that council.

The move by the Central Bank of Venezuela marks the first time in history that a central bank has directly purchased Bitcoin. Some central banks, including the European Central Bank and the Swiss National Bank, have explicitly rejected this idea. In 2019, the Central Bank of Venezuela tested whether it could include Bitcoin or Ethereum in its reserves, but it seems to have never been truly implemented. El Salvador holds Bitcoin in its Ministry of Finance (rather than its central bank), while Bhutan's state-owned investment firm Druk Holding and Investments is responsible for mining and holding Bitcoin.

Galaxy's Viewpoint:

Although the Czech central bank has repeatedly emphasized that this purchase of Bitcoin is for testing blockchain technology, rather than establishing a strategic Bitcoin reserve, it is still a milestone moment. Shortly after Bitcoin's birth in 2009, Satoshi Nakamoto wrote: “The fundamental problem with traditional currency is the trust required to make it work… It is necessary to trust that the central bank will not devalue the currency, but the history of fiat money is filled with examples of betrayal.” Over the years, donation funds, banks, sovereign wealth funds, and even national treasuries have purchased Bitcoin, but central banks have always refused to buy it. Perhaps it's because they feel their own interests are threatened - after all, Bitcoin challenges the very foundation of currency, and the currency field has been the exclusive domain of central banks for over a hundred years.

In January this year, the Czech National Bank (CNB) proposed to increase its Bitcoin holdings, wording it closer to including it in its strategic reserves. However, today the central bank is keen to assure the public that this increase in Bitcoin holdings is purely for educational and “testing” purposes. But given the previous statements from the Czech National Bank, we can't help but wonder whether they are openly violating the regulations set by Lagarde and the European Central Bank, and in fact have incorporated Bitcoin into their reserve assets. Even if these purchases—including Bitcoin, stablecoins, and tokenized deposits—are merely for learning, it is undoubtedly wise and commendable for a central bank to familiarize itself with the complexities of custody, trading, and other details of blockchain usage. However, while one million dollars is just a small amount for an institution like a central bank, it still far exceeds what is needed to learn how to use a Bitcoin wallet.

Regardless of whether the motivation behind the Czech National Bank's actions is testing, reserve accumulation, or a combination of both, this milestone event is real. Bitcoin has been mocked, ignored, and even hated by central banks around the world (many still feel this way). But then, people began to study Bitcoin, explore blockchain technology, and eventually recognize the value of Bitcoin. About a year ago, Federal Reserve Chairman Jerome Powell described Bitcoin as “like gold, only virtual and digital”; this statement from the head of the world's largest central bank is itself a bold assertion.

This transaction in the Czech Republic feels like another step in the same direction, where Bitcoin is no longer hated, not just recognized, but used for testing purposes. It’s not hard to imagine what the next step will be.