Swiss National Bank Rejects Bitcoin for Reserves Citing Risk Factors

The Swiss National Bank rejected the idea of adding Bitcoin to its reserves, citing liquidity and volatility risks. President Martin Schlegel emphasised that Bitcoin does not currently meet the bank’s stringent reserve requirements, despite claims from the Bitcoin Initiative that such an allocation would improve returns with minimal added risk. The bank has indirect exposure to Bitcoin through investments in several US-based companies that hold Bitcoin in their treasuries.

On Friday, Swiss National Bank (SNB) President Martin Schlegel firmly dismissed suggestions to include Bitcoin in the central bank’s reserves, citing significant liquidity and volatility risks. Schlegel expressed these concerns during the bank’s General Assembly, emphasizing that Bitcoin does not meet the rigorous requirements set for currency reserves in Switzerland.

According to the Bitcoin Initiative, if the SNB had allocated even 1% of its portfolio to Bitcoin back in 2015, it would have nearly doubled returns yet experienced only slight increases in volatility. They argue that Bitcoin should not be analysed solely on its own volatility, but rather how it interacts with other assets within a portfolio. This reflects a growing debate on the role of cryptocurrency in traditional financial systems.

Despite the SNB’s reluctance, the bank does have indirect exposure to Bitcoin through its investments in various American firms such as Strategy, Tesla, and MARA Holdings, which have significant Bitcoin holdings. The Bitcoin Initiative, a pro-Bitcoin group, believes that engaging with Bitcoin could enhance overall portfolio performance while safeguarding against market instability. Schlegel, however, remains unconvinced.

In further commentary, Schlegel pointed out that cryptocurrency liquidity often fluctuates, especially during market crises. He underscored the asset’s volatility which poses long-term value challenges, declaring that, at this moment, cryptocurrencies are simply not suitable for the bank’s reserve criteria.

Advocates for Bitcoin, such as Luzius Meisser from the Bitcoin Initiative, rebutted these claims by highlighting Bitcoin’s trading resilience and liquidity. They noted that the Bitcoin market has maintained robust trading volumes around billions, regardless of weekends or holidays. Meisser added that the technological framework of the Bitcoin network remains unmatched in terms of reliability and security.

The political ramifications of the SNB’s stance were also highlighted by the Bitcoin Initiative, suggesting that Switzerland’s rejection of Bitcoin may reflect unease towards competing currencies and could potentially strain relationships with the EU. This comes amidst scepticism from other central bank leaders in Europe, like ECB President Christine LaGarde, who has infamously referred to Bitcoin as having no value and as merely speculative.

Meanwhile, in the U.S., actions differ; President Biden has signed an executive order establishing a strategic Bitcoin reserve and a crypto stockpile. SNB’s Schlegel previously expressed that they’re examining the potential of central bank digital currencies (CBDCs) through pilot projects whereas their stance on Bitcoin remains firm—no acceptance, at least for now.

Despite mounting pressure and public interest, the Swiss central bank holds its ground, demonstrating a cautious approach towards integrating cryptocurrencies into its financial framework.

Victor Chen contributed to this report.
Christine Lee is a senior anchor at CoinDesk, with prior experience at Thomson Reuters, Bloomberg, and Pro Publica, where she was part of the Pulitzer Prize-winning team.

Follow her on X @christinenews.