Introduction On January 7, 2025, Aleš Michl, the governor of the Czech National Bank, proposed a groundbreaking proposal to include Bitcoin (BTC) in the countrys foreign exchange reserve assets. This proposal has not only sparked widespread discussion in the Czech Republic and abroad, but also highlighted the potential of cryptocurrencies as central bank reserve assets, which are receiving increasing attention. Globally, El Salvador, as the first country to use Bitcoin as legal tender, has a Bitcoin reserve of 6,068 coins with a market value of more than $554 million, fully demonstrating the potential of Bitcoin as a reserve asset. In addition, MicroStrategy, one of the worlds largest Bitcoin holders, currently holds nearly 480,000 Bitcoins with a market value of approximately $31.1 billion. These measures provide strong support for Bitcoin to enter the capital market.
If the Czech proposal is implemented, it is expected that about 7 billion euros will be used to purchase 70,000 bitcoins, which will make the Czech Republic the worlds third largest bitcoin holder, second only to the United States and China, further promoting the recognition of Bitcoin as a global reserve asset.
This proposal could have far-reaching implications for the European crypto market, especially as major economies such as France and Germany are experiencing political turmoil. In 2024, France saw large-scale protests over pension reforms and high tax burdens. Social unrest has exacerbated distrust of the traditional financial system. France may re-examine the potential of crypto assets and may relax regulation of cryptocurrencies to promote the development of digital currencies. In Germany, economic slowdown, energy transition and internal political frictions have led to an increasing interest in crypto assets, especially in the application of green finance and blockchain technology. Germany may adjust its policies more flexibly in the future.
From a global economic perspective, since the implementation of quantitative easing in the United States in 2020, the Federal Reserve has injected more than $5 trillion in liquidity into the market . Although it has promoted the recovery of the U.S. economy, it has put pressure on the European economy. The appreciation of the euro and imported inflation have become prominent problems. In 2022, the inflation rate in the eurozone once reached a record high of 10.6% . Against this background, European countries are promoting green and digital transformation and reducing their dependence on the U.S. dollar through encrypted assets. The Czech Republics Bitcoin reserve proposal just meets this demand and provides a new economic growth point for the Czech Republic and Europe.
However, the Czech proposal faces certain challenges, especially the strong opposition from Christine Lagarde, President of the European Central Bank. She believes that Bitcoins high volatility, lack of regulatory framework and potential threat to financial stability make it unsuitable as a central bank reserve asset. Nevertheless, since the Czech Republic has not yet joined the eurozone and its central bank has a certain degree of independence in monetary policy, it is still possible for the Czech Republic to break through the resistance of the ECB and advance the Bitcoin reserve proposal. In addition, the new bill recently passed by the Czech government allows individuals who hold Bitcoin for more than three years to be exempt from capital gains tax, further demonstrating the Czech Republics friendly attitude towards cryptocurrencies and consolidating its important position in crypto asset innovation.
Although the Czech proposal faces opposition from the ECB in the short term, the governments long-term policy clearly supports this trend. The Czech policy environment and support for Bitcoin will promote the status of Bitcoin as a reserve asset.
In the future, the market will continue to pay attention to several key factors: the change in the ECBs attitude, whether the Czech Republic can overcome the ECBs opposition, and whether the Czech Republic can further promote policies that are favorable to crypto assets, especially the capital gains tax policy and other related legal adjustments. We will continue to track these key data and policy developments and pay attention to their impact on the potential of Bitcoin as a reserve asset.
Analysis of the Czech Incident
I. Background Overview
On January 7, 2025, Aleš Michl, the president of the Czech National Bank (CNB), first proposed a strategy to consider including Bitcoin (BTC) in foreign exchange reserves, marking that the Czech Central Bank may become the worlds first Western central bank to hold crypto assets. The proposal has attracted widespread attention, especially in the context of crypto assets being increasingly valued by global investors. On February 6 of the same year, the Czech government passed a new bill that allows individuals who hold Bitcoin for more than three years to be exempt from capital gains tax. This policy provides strong support for Bitcoin as a strategic asset and also shows the Czech Republics friendly attitude towards cryptocurrencies. According to Michls remarks, the CNB is actively seeking to diversify its reserve assets and plans to increase its gold holdings to 5% of total assets by 2028. It is also considering investing part of its foreign exchange reserves in Bitcoin.
2. Impact on the Crypto Market
Potential for investment returns: Bitcoin has performed well since its launch, with an annual return of 130% in recent years, far exceeding gold (about 30%). In the current global economic environment, Bitcoins performance makes it a potential reserve asset. If more countries include Bitcoin in their reserves, it may be able to challenge the status of traditional safe assets such as gold. Market reaction and impact: The Czech Central Bank proposed to invest 5% of its foreign exchange reserves (about 7 billion euros) in Bitcoin, equivalent to buying 70,000 Bitcoins. At the current market price of Bitcoin (about $100,000 per coin), this would make the Czech Republic the worlds third largest Bitcoin holder, second only to the United States and China. This move may trigger market recognition of Bitcoin as a strategic asset and push more countries to consider including Bitcoin in their reserves. Global trend: Previously, El Salvador and the Central African Republic have included Bitcoin in legal tender and in foreign exchange reserves. If the Czech Republic eventually adopts the proposal, it will become the third country in the world to use Bitcoin as a reserve asset.
3. Integration of Czech Central Bank Policy and Cryptocurrency Market
Since Aleš Michl took office as the governor of the Czech National Bank in July 2022, the Czech central bank has adopted a tough policy to deal with the inflation rate of up to 17.5%, successfully reducing it to the target level. At the same time, a series of policies have also put pressure on the Czech balance sheet.
In order to improve the return on foreign exchange reserves, the central bank is promoting asset diversification, planning to increase the proportion of stock investment to 30% (about half of which are US stocks) from 2024, and increase gold reserves to 100 tons, accounting for 5% of foreign exchange reserves. In addition, the central bank is exploring the inclusion of Bitcoin in its reserves to further enrich its asset portfolio and improve returns.
The Czech Republic is friendly to cryptocurrencies. Prague has the highest density of Bitcoin ATMs in Europe, and some merchants already accept Bitcoin payments. The active crypto community and open regulatory environment make it an important market for the European crypto industry. Although the Digital Strategy 2030 launched in 2022 does not explicitly involve cryptocurrencies, it includes support for blockchain technology, providing a favorable external environment for the central bank to adopt Bitcoin. The Czech central banks diversification strategy complements the booming crypto market and lays the foundation for future innovation in reserve assets.
IV. Policy Evaluation
1. Biography of Aleš Michl, Governor of the Czech Central Bank
Aleš Michl has been the Governor of the Czech Central Bank since July 2022. He holds a PhD in Finance from the University of Economics and Business in Prague and has worked as an investment strategist at several banks. He also co-founded an algorithmic asset management fund focusing on the US stock market and the Czech money market. Michl is a proponent of monetarism and is deeply influenced by Milton Friedmans theory. He believes that the primary task of the central bank is to curb inflation and stabilize the economy by controlling the money supply. He proposed the inclusion of Bitcoin (BTC) in foreign exchange reserves, believing that Bitcoin, as an emerging asset, can not only diversify reserves, but also has high return potential, especially against the backdrop of increasing uncertainty in global financial markets, its decentralized nature provides a hedging function.
2. Aleš Michl’s policy proposals
Michl pointed out that the Czech central banks foreign exchange reserves are too dependent on the US dollar and gold, which is vulnerable in the current global economic environment. He advocates diversifying the reserve asset portfolio through Bitcoin and reducing dependence on traditional assets. Bitcoins annualized return rate in recent years has been as high as 130%, making it an extremely attractive asset class. Although the Bitcoin market is volatile, Michl believes that risks can be controlled through proper risk management. He hopes to increase the return on reserve assets by incorporating Bitcoin into foreign exchange reserves, especially to seek new growth points outside of low-yield gold and legal currency assets.
3. Czech policy promotion and decision-making process
The Czech National Bank’s Board of Directors is conducting an in-depth analysis of the feasibility of Bitcoin as a foreign exchange reserve asset. According to the previous decision-making process, the board of directors takes weeks to months to evaluate the proposal and ultimately decides whether to implement it through voting. The Czech National Bank’s policy is relatively independent, which means that even in the face of external opposition, the central bank can still make decisions based on its own needs. According to the past decision-making timeline, the decision of the Czech National Bank’s Board of Directors usually takes several months. For example, when the Czech Central Bank decided to intervene in foreign exchange to prevent deflation in 2013, it took about 5 months from the decision to implementation. At present, the proposal to include Bitcoin in the reserve is still in the analysis stage, and it is expected that more time will be needed to complete the risk assessment.
4. Biography of European Central Bank President Christine Lagarde
Christine Lagarde is the current President of the European Central Bank and a former French Finance Minister and Managing Director of the International Monetary Fund (IMF). She has extensive influence in the global financial sector and has promoted financial stability, monetary policy reforms, and sustainable development of the global economy. Lagarde has always emphasized financial stability and inflation control, and led the European Central Bank to adopt an accommodative monetary policy, especially in response to the eurozone economic crisis. As an experienced financial leader, Lagarde is cautious about crypto assets such as Bitcoin, believing that the high volatility and lack of regulation of these assets may have an adverse impact on the stability of the financial system.
5. Lagarde’s policy proposals
The Czech central banks Bitcoin reserve proposal triggered a strong reaction from the European Central Bank (ECB). ECB President Christine Lagarde publicly expressed her opposition to including Bitcoin in reserve assets, citing its high volatility and the risk of concentrated holdings. She said at a press conference after the ECBs interest rate decision was announced: I believe that Bitcoin will not enter the reserves of any central bank of the General Council. It can be seen that her attitude is relatively tough.
Although Lagardes objection does not have the effect of mandatory intervention, especially when the Czech Republic has not yet joined the eurozone, the Czech central bank has a strong independence in monetary policy. But her objection is quite strong. Therefore, Lagardes attitude may have an impact on the decision-making process of the Czech central bank. The Czech central bank will need to further evaluate the risks and potential of Bitcoin at the board level to decide whether to adopt this proposal.
Lagarde opposes the inclusion of Bitcoin in the eurozone reserve assets for five main reasons:
High volatility: Bitcoin’s price fluctuates wildly, which could cause the value of central bank reserves to fluctuate drastically, affecting the stability of monetary policy and the stability of the financial system.
Concentrated holding risk : The circulation of Bitcoin is uneven, and a few large holders or institutions hold most of the Bitcoin, which may lead to market manipulation and unfair price fluctuations, posing a threat to the stability of the central banks reserve assets.
Lack of regulatory framework : Currently, the cryptocurrency market, such as Bitcoin, lacks unified global regulation, making it vulnerable to the risks of manipulation and fraud, and increasing uncertainty in central bank reserves.
Does not meet the standards of a reserve asset : Bitcoin does not have the stability and liquidity of traditional reserve assets, and especially under extreme market conditions, may not be able to provide the liquidity support required by the central bank.
Financial stability issues : Bitcoin’s high volatility may exacerbate systemic risks, posing a threat to financial stability, especially in countries with more fragile economies.
V. Conclusion and Outlook
The Czech National Banks proposal to include Bitcoin in foreign exchange reserves marks a major innovation in the asset allocation of global central banks. If the proposal is adopted, the Czech Republic will become one of the worlds major Bitcoin holders, promoting the widespread recognition of Bitcoin as a strategic reserve asset. This is expected to not only increase the Czech Central Banks reserve returns, but also enhance the Czech Republics competitiveness in the global financial market.
However, the disagreement between Czech Central Bank Governor Michl and ECB President Lagarde highlights that there are still major differences in the status of crypto assets in the international financial system. Lagardes strong opposition may have an impact on the Czech Central Banks decision-making, especially in terms of monetary policy coordination and financial stability. Although the Czech Republic has strong independence in monetary policy, how to balance the high volatility of Bitcoin with the stability of reserve assets remains an important challenge for central banks around the world.
However, the new bill recently passed by the Czech government - which allows individuals who hold Bitcoin for more than three years to be exempt from capital gains tax - provides strong support for Bitcoin as a strategic asset and reflects the Czech Republics friendly attitude towards cryptocurrencies.
Although the Czech proposal is constrained by the opposition of the European Central Bank in the short term, and whether Bitcoin will be included in the reserve assets has not yet been determined, the Czech governments long-term policy direction clearly supports this trend. The Czech policy environment and support for Bitcoin will promote the continuous improvement of Bitcoins status as a reserve asset.
As more countries begin to discuss the possibility of Bitcoin as a reserve asset, the role of cryptocurrency as a strategic asset may be further confirmed. However, how to find a balance between high volatility and the stability of reserve assets remains a key challenge facing central banks.
Bitcoin Outlook 2025
Macroeconomic background and Bitcoins strong position In the next two years, US dollar assets are expected to remain strong, and Bitcoin, as digital gold, will continue to benefit from the loose environment of US dollar liquidity. In the first half of 2025, the approximately $700 billion in reserve funds released by the US Treasury will push up market liquidity and provide support for risky assets such as Bitcoin. Although Europe and the United States are gradually solving supply-side problems, global inflationary pressures remain, and Bitcoins anti-inflation properties will attract more institutional and individual investors. The approval of Bitcoin ETFs in 2024 and the increase in holdings have laid a solid foundation for it. It is expected that Bitcoin ETF holdings will surpass gold in 2025 and become an important choice for mainstream asset allocation.
Buying volume and price increase forecast After the launch of Bitcoin ETF in 2024, institutional funds will flow in heavily, and this trend is expected to accelerate in 2025. According to Bloomberg data, the asset management scale (AUM) of Bitcoin ETF has exceeded US$50 billion in 2024, and is expected to reach more than US$100 billion in 2025. The participation of retail investors will also increase, and the number of users of mainstream exchanges is expected to increase by 20%-30%, pushing the average daily trading volume of Bitcoin to exceed US$50 billion. In addition, after the Bitcoin halving in 2024, the selling pressure of miners will be significantly reduced. It is expected that the miners holdings will remain below 1 million BTC in 2025, further reducing the market supply. The halving cycle every four years in Bitcoins history is usually accompanied by a sharp rise in price. After the halving in 2024, the price of Bitcoin in 2025 is expected to replicate the bull market performance in 2017 and 2021. According to historical data, the price of Bitcoin usually increases by 300%-500% within 12-18 months after the halving. Technically, the long-term support level of Bitcoin is around $30,000, and the loose liquidity environment in the first half of 2025 may push Bitcoin to break through $100,000, or even challenge the historical high of $150,000. According to Glassnode data, the number of active addresses and holdings on the Bitcoin chain continue to grow, and market sentiment is optimistic. It is expected that the price of Bitcoin will increase by 150%-200% in 2025, and the target price range at the end of the year is $120,000-150,000.
Potential Catalysts and Risks The integration of AI and blockchain, geopolitical risks, and the acceleration of global compliance will be catalysts for Bitcoins rise. However, policy uncertainty (such as the US debt ceiling issue) and black swan events (such as the yen system crisis) may trigger market volatility. In summary, 2025 will be a critical year for Bitcoin, and macro liquidity, institutional capital inflows, and technical support will jointly drive its price to rise sharply. Bitcoin is expected to rise by 150%-200% throughout the year, with a target price range of US$120,000-150,000. Investors can focus on the beta market window in the first half of the year, and be prepared for a defensive counterattack throughout the year.
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