The Bank of Korea recently aired its view on using Bitcoin as a reserve asset, underscoring its stance amid the global discussion on the role of cryptocurrencies in national reserves.
Why is South Korea not interested in a Bitcoin reserve?
Earlier this March, South Korea’s Democratic Party urged the Bank of Korea to explore the potential of adding Bitcoin to its reserves following the move by the U.S. government. However, the Bank of Korea's response was negative. The main reason for the lack of interest is the high volatility of Bitcoin. According to the bank's statement, the BTC price trajectory resembles a roller coaster, and due to the potential for a price decline, Bitcoin cannot guarantee an expected value in Korean won at any given moment. The reserve asset should be available and usable immediately by request, denominated in a currency with a high credit rating. Bitcoin doesn’t meet these criteria. Additionally, the Bank of Korea noted that despite the positive experiences of Brazil and Czechia, institutions like the European Central Bank, Switzerland, and Japan assessed the idea of using Bitcoin as a reserve fund negatively.
Crypto in South Korea
South Korea is one of the world’s largest economies and a crypto-friendly hub. Crypto exchanges are legal and regulated there. Cryptocurrencies are not considered money, and capital gains from them are tax-free. In the context of political uncertainty and high unemployment rates, South Korean youth lean towards cryptocurrencies as an alternative source of financial independence. The long-time public familiarity with micropayments, such as in social media and games, created a positive environment for embracing crypto. Nearly 50% of Koreans in their 30s are crypto investors. South Korea is home to several vibrant crypto platforms, including Upbit, Bithumb, and HTX. The rejection of Bitcoin as a reserve asset is not a move of cryptophobia but rather a cautious approach by a generally crypto-friendly administration.
Why do other countries reject the idea of a Bitcoin reserve?
The governor of the Czech National Bank introduced a proposal to spend billions on Bitcoin to diversify the reserves. Following this, European Central Bank President Christine Lagarde stated that Bitcoin is unfit for the ECB reserve as it lacks enough safety and liquidity. Japan rejected Bitcoin as it doesn’t align with the national reserve strategy, citing price volatility and incompatibility with the existing financial frameworks. The Swiss National Bank called cryptocurrencies 'a niche phenomenon,' with President Martin Schlegel saying that high volatility and low liquidity block Bitcoin from becoming a reserve asset. This stance reflects the conservative approach many nations take despite pro-Bitcoin arguments. Current attitudes towards Bitcoin as a reserve highlight a pragmatic approach to high-risk, volatile assets like cryptocurrencies.
Despite a global discussion on cryptocurrencies, many countries remain cautious about Bitcoin as a reserve asset. Current bank policies indicate a pragmatic approach to the high risk and instability inherent in cryptocurrencies. Time will show which approach to Bitcoin will be most successful.
