Swiss National Bank Declines Bitcoin Reserves Amid Liquidity Concerns

The Swiss National Bank has declined to add Bitcoin to its reserves, citing concerns over liquidity and volatility. President Martin Schlegel stated cryptocurrencies do not meet the bank’s high standards. The Bitcoin Initiative claims a small allocation would have improved returns significantly since 2015. Additionally, there are political implications of Bitcoin’s exclusion within the context of EU relations.

The Swiss National Bank (SNB) has firmly rejected suggestions to incorporate Bitcoin into its reserves, citing significant liquidity and volatility concerns. President Martin Schlegel conveyed these points at a recent General Assembly meeting, clarifying that cryptocurrencies currently do not align with the stringent standards expected for Swiss currency reserves. “During crises, market liquidity can easily be called into question,” Schlegel remarked, emphasising the inherent risks associated with Bitcoin’s erratic nature.

Interestingly, a report from the Bitcoin Initiative claims that had the SNB allocated just 1% of its portfolio to Bitcoin back in 2015, it could have nearly doubled its returns with only a modest increase in volatility. The report suggests that Bitcoin could actually enhance overall portfolio performance when viewed in a broader context. However, the SNB has not found this convincing enough to change its stance.

Despite a considerable 10% growth in SNB investments since 2015 without Bitcoin, the Bitcoin Initiative argues that the cryptocurrency’s daily trading volumes remain robust, often hitting double-digit billions, even during off-hours or holidays. Luzius Meisser, a representative from the initiative, pointed to the cryptocurrency’s resilience under market pressure and the robustness of its network as critical advantages, contrasting this with ongoing scepticism from various central bank leaders.

Notably, concepts surrounding Bitcoin adoption and reserve holding have stirred political implications. The Bitcoin Initiative speculated that the SNB’s reluctance could stem from political motivations, possibly reflecting a distrust in alternative currencies and complicating Switzerland’s relationship with the EU. This viewpoint echoes sentiments recently articulated by European Central Bank President Christine LaGarde, who has been vocally critical of Bitcoin, labelling it a ‘highly speculative asset’.

Moreover, the regulatory landscape surrounding cryptocurrency seems to be tightening. For instance, Poland’s and Romania’s central banks have both firmly ruled out any potential integration of Bitcoin into their reserves, while Federal Reserve chair Jerome Powell reiterated that U.S. law currently prohibits the central bank from owning Bitcoin.

In light of these developments, the SNB appears resolute in its strategy to explore modern financial technologies, mentioning ongoing pilot projects involving central bank digital currencies for financial institution payments. This contrasts with moves made by the Trump administration in the U.S. towards establishing a strategic Bitcoin reserve, highlighting the divergent paths being taken by different nations regarding cryptocurrencies.

Christine Lee, a senior anchor at CoinDesk, contributed to this report. Previously, Lee has worked for several prestigious news organisations and was awarded the 2017 Pulitzer Prize for Public Service.