Lyn Alden Explains How Central Banks Could Buy Bitcoin On Balance Sheet

Investment strategist, Lyn Alden, discusses the topic how Bitcoin could eventually become a balance sheet asset for central banks.

Alden spoke with Peter McCormack on his What Bitcoin Did podcast, and made a point that the current geopolitical tensions could drive certain nation-states to take a serious look at Bitcoin.

According to Alden, countries all over the world freezing and seizing Russian assets, is laying out a great use case for Bitcoin.

“In theory, that increases the desirability of reserves that can’t be canceled. The knee-jerk one is gold because this is the one the central banks already own, it’s already big and liquid, something like $12 trillion estimated market cap, less volatile… 

The longer you look out into the future, the more attractive Bitcoin arguably becomes as a reserve asset.” 

She points out that before central banks would move into Bitcoin, it would probably be sovereign wealth funds, with higher risk appetite for risk, who start buying BTC first. More investors in the game means more liquidity and less volatility, which eventually would set a stage for central banks to move in, Alden estimates.

“I think it shows up first in things like sovereign wealth funds because if you define something as an investment, you get away with more volatility than if you define something as a reserve. So by their nature, central banks’ reserves are supposed to be very conservative, so things like currencies or gold. Whereas sovereign wealth funds, they buy things like equities. Even some central banks buy equities but for the most you see equities in sovereign wealth funds…

And the bigger Bitcoin gets, the more widely held it is, the more liquidity there is, the more central banks can start looking at that as a viable mutual reserve asset because it kind of fixes two things for them. One, they have an asset that can’t be frozen by a unilateral third party, and two, they also can go around sanctions and they can have permissionless payments, and so that is something you’d think would become more attractive to countries around the world.”