Central banks should buy bitcoin as a hedge against sanctions from other countries, Harvard Ph.D. says candidate

by James · November 25, 2022

By Weston Blasi

The paper comes shortly after the crypto exchange FTX struggled with liquidity problems and filed for bankruptcy.

A research paper published by Harvard University advocates that central banks should buy bitcoin as a hedge against sanctions from other countries.

The article, titled “Hedging Sanctions Risk: Cryptocurrency in Central Bank Reserves,” was written by Ph.D. candidate Matthew Ferranti from Harvard’s economics department, comparing the central banks’ gold reserves with potential bitcoin holdings.

Ferranti points out that central banks in countries around the world should look at holding bitcoin as a hedge against possible financial sanctions. He gives an example of the unprecedented economic sanctions imposed on Russia by the US and many Western nations after its invasion of Ukraine – billions in Russian assets were frozen after the Ukraine war began.

“Sanctions risk could reduce the appeal of US Treasuries, drive broader diversification in central bank reserves and strengthen the long-term fundamental value of both cryptocurrency and gold,” Ferranti writes.

In the paper, Ferranti says that El Salvador is a model for central banks that own bitcoin. The country, led by bitcoin bull Nayib Bukele, has bought millions of dollars worth of crypto and even made bitcoin an official national currency.

See also: ‘We just bought the dip’: El Salvador expands bitcoin holdings

Since the inception of popular cryptos like bitcoin and ether, part of the 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 the collapse of popular crypto exchange FTX, as well as financial problems for crypto companies Voyager and Celsius, some crypto bulls have called for increased regulation and transparency for the industry.

The newspaper comes after FTX struggled with liquidity problems in November, which eventually led to a declaration of bankruptcy. Sam Bankman-Fried resigned as CEO and later apologized for the collapse of his former company.

See: Why do people invest in crypto? “It’s part fraud and part delusion,” says Charlie Munger

See also: Tom Brady, Steph Curry and Kevin O’Leary to lose big in FTX bankruptcy filing

Bitcoin’s price is down over 70% in the last year, and the price of Ether is also down over 70% in the same period. The total market cap for all crypto reached nearly $3 trillion in parts of 2021, but is now around $800 billion.

-Weston Blasi

(END) Dow Jones Newswires

11-25-22 1352ET