A Harvard Study Finds BTC May Help Central Banks Avoid Penalties
Matthew Ferranti, a Harvard PhD candidate, argued that Bitcoin is the optimum alternative asset for central banks’ hedging purposes.
A Harvard University research report described how central banks might utilise Bitcoin BTC to hedge against financial restrictions imposed by fiat reserve issuers.
In a working paper titled “Hedging Penalties Risk: Cryptocurrency in Central Bank Reserves,” PhD candidate Matthew Ferranti of the university’s economics department examined the possibility of Bitcoin as an alternative hedging asset for central banks to combat prospective sanctions.
Ferranti proposed that central banks should keep a modest amount of Bitcoin even under normal conditions. However, according to the study, when there is a potential for sanctions, it makes sense to maintain a more significant proportion of BTC alongside their gold holdings.
In the article, the researcher also noted that nations facing sanctions from the United States had increased the proportion of their gold holdings much higher than countries with a lower risk of penalties. If these central banks cannot buy sufficient gold to hedge against the danger of sanctions, the researcher argues that Bitcoin reserves are the ideal option.
Aside from this, the researcher thinks that the fear of sanctions may ultimately encourage the diversification of central bank reserves, increasing the value of cryptocurrencies and gold. Ferranti found that diversifying resources and allocating sections to Bitcoin and gold had considerable advantages.
Digital strategists at the Bank of America (BofA) said that the rising connection between BTC and gold reflects investors’ faith in Bitcoin throughout the present economic slump. In addition, the strategists at BofA feel that the increase in self-custody suggests a possible reduction in sell pressure.
Some community members stated that self-custody is not risk-free, even though self-custody has begun to gain attention after the collapse of the FTX exchange. From vulnerabilities inside smart contracts to heirs gaining access to crypto assets after death, community members have identified various problems that may develop when individuals self-custody digital assets.
