Matthew Ferranti, a Ph.D. candidate at Harvard, pointed out that Bitcoin is the best alternative asset for central banks to use as a hedge.
Using Bitcoin BTC tickers down$16,572 as a hedge against financial sanctions from fiat reserve issuers was the focus of a Harvard University study.
A work in progress with the title “Hedging Sanctions Risk : Matthew Ferranti, a Ph.D. candidate in the university’s economics department, wrote a paper titled “Cryptocurrency in Central Bank Reserves” that looked at how central banks could use Bitcoin as an alternative hedging asset to ward off potential sanctions.
Ferranti argued that even under normal circumstances, central banks should hold a small amount of Bitcoin. However, the researcher stated that it makes sense to hold a larger portion of BTC in addition to their gold reserves when there is a risk of sanctions.
The researcher also mentioned in the paper that countries that were at risk of US sanctions have been increasing their gold reserves much more than countries that were at lower risk of sanctions. The researcher argued that Bitcoin reserves are the best alternative in the event that these central banks are unable to acquire sufficient gold to hedge against the risks of sanctions.
Aside from this, the researcher is of the opinion that the possibility of sanctions may eventually encourage diversification in the reserves held by central banks, which would raise the value of crypto and gold. Ferranti came to the conclusion that diversifying reserves and allocating portions to Bitcoin and gold have significant advantages.
Digital strategists at Bank of America (BofA) pointed out that investors’ confidence in Bitcoin during the current economic downturn is reflected in the rise in the correlation between BTC and gold. The rise in self-custody, according to BofA strategists, may also indicate a decrease in sell pressure.
Despite the fact that self-custody has begun to gain attention since the FTX exchange’s collapse, some community members argued that it comes with risks. Members of the community highlighted a number of potential issues that could arise when individuals elect to self-custody their digital assets, ranging from flaws in smart contracts to loved ones being able to access crypto assets after a death.