According to the Czech Republic's central bank governor, Alex Michl, incorporating bitcoin into the bank's reserves could potentially enhance performance due to its low correlation with traditional assets. However, Michl emphasized that the cryptocurrency's volatility is substantially higher than other assets, posing a significant risk. He noted that the price of bitcoin could either skyrocket or plummet to zero. Michl stressed that diversification is key, as all assets carry the risk of losing their value.
He shared his personal experience with bitcoin, recalling that the first time he used it, he bought a coffee that would now be worth around $350, making it the most expensive coffee of his life. The Czech National Bank conducted a study after purchasing $1 million in bitcoin in November, which revealed that the cryptocurrency's long-term returns are high but also accompanied by considerable risk. The study found that bitcoin's low correlation with traditional assets could make it a valuable addition to a portfolio, potentially increasing returns while maintaining a similar level of risk.
Nevertheless, the bank's board decided against investing its foreign exchange reserves in bitcoin due to its volatility.