- Is Bitcoin a full participant in bank reserves?
- Correlation between bitcoin and gold builds confidence in cryptocurrencies
- Will cryptocurrency replace the dollar and euro in the face of sanctions?
Matthew Ferranti, a Ph.D. candidate in economics at Harvard University’s Department of Economics, published a paper entitled Hedging Sanctions Risk: Cryptocurrency in Central Bank Reserves. He conducted a study of bitcoin as an alternative hedging asset for central banks to combat potential sanctions. The paper describes Bayesian bundling modeling to examine whether bitcoin could serve as a suitable alternative to gold in the face of sanctions risk. The author’s conclusion is that cryptocurrency against sanctions could be a real bailout for states.
Is Bitcoin a full participant in bank reserves?
Ferranti concluded that bitcoin is secure enough for banks to use it as a reserve even in normal, “calm” economic and political situations. And he recommended that countries that may be subject to US sanctions keep bitcoins together with their gold reserves.
The study found that countries with a high risk of sanctions always increase the share of gold reserves compared to “low risk” countries. In the event that more gold cannot be purchased, bitcoins are an alternative to hedge sanctions risks.
Ferranti also argues that sanctions risk encourages the diversification of central bank reserves and strengthens the value of cryptocurrencies.
Correlation between bitcoin and gold builds confidence in cryptocurrencies
Bank of America strategists have once again confirmed that the correlation between bitcoin and gold is growing. This means that investors continue to trust bitcoin even amid the crypto winter.
Nevertheless, many emphasize the high risks of cryptocurrency, from software bugs to problems with gaining access to the wallet after the owner’s death. Fears are also caused by regulators, who do not agree on the nature of cryptocurrency and are not able to introduce legislation. But because the crypto market is in its infancy, it is now in the process of shaping its rules. This process will last for more than a year.
Will cryptocurrency replace dollar and euro in the face of sanctions?
Since February 2022, the dollar and euro have lost a lot of their positions in foreign economic activity of the Russian Federation with other states. At first, they were replaced by the UAE dirham, Saudi Arabian riyal, Hong Kong dollar and Chinese yuan, as well as the currencies of the former Soviet republics.
However, the younger generation of entrepreneurs is already well acquainted with cryptocurrency and many have experience using it. Sooner or later bitcoin will reach the national level and become a full-fledged participant in the economy and a hedging tool. The matter of issuing permits to legal entities for payments in cryptocurrency is already being discussed.
With such prospects of bitcoin one should think about protecting their assets from suspicion now. Dirty coins that have ever passed through suspicious or sanctioned wallets are blocked by exchanges. To avoid such trouble, a bitcoin mixer, a service that exchanges customers’ coins for coins from an exchange, is used. A reliable mixer obfuscates the trail of bitcoins so that deanonymization algorithms cannot trace the entire chain of transactions and lead to the owner. With imperfect regulation and exchanges actively seeking to please everyone but their customers, using a mixer is a matter of common sense.
