The paper, titled “Hedging Sanctions Risk: Cryptocurrency in Central Bank Reserves,” was authored by Ph.D. candidate Matthew Ferranti from Harvard’s economics department, and likens central banks’ gold reserves to potential bitcoin holdings.
Ferranti points out that central banks in countries across the globe should look into holding bitcoin as a hedge against possible financial sanctions. He gives the example of the unprecedented financial sanctions levied against Russia by the U.S. and many western nations following its invasion of Ukraine — billions in Russian assets were frozen after the Ukraine war began.
“Sanctions risk may diminish the appeal of U.S. Treasuries, propel broader diversification in central bank reserves, and bolster the long-run fundamental value of both cryptocurrency and gold,” Ferranti writes.
In the paper, Ferranti says El Salvador is a model for central banks owning bitcoin. The country, headed by bitcoin bull Nayib Bukele, has purchased millions of dollars worth of the crypto and has even made bitcoin an official national currency.
Since the inception of popular cryptos like bitcoin and ether ETHUSD, +2.07%, part of its appeal has been the lack of involvement from central banks, in favor of the decentralized nature of the digital asset.
In the wake of the recent crypto winter and collapse of popular crypto exchange FTX, as well as financial issues for crypto companies Voyager and Celsius, some crypto bulls have called for increased regulation and transparency for the industry.
The paper comes after FTX struggled with liquidity issues in November, eventually leading to a bankruptcy filing. Sam Bankman-Fried resigned as CEO and later apologized for the collapse of his former company.
Bitcoin’s price is down over 70% over the past year, and the price for ether is also down over 70% over the same period. The total market cap for all crypto nearly hit $3 trillion during parts of 2021, but is now around $800 billion.