Capital markets have witnessed a remarkable surge in the valuation of digital currencies in recent months. This trend has been further amplified by the results of the recent US elections, with President-elect Donald Trump expressing consistently pro-crypto policies and advocating for a less restrictive regulatory framework. Bitcoin (BTC), the world’s leading cryptocurrency, saw its value increase by approximately 150% in 2024.
This dynamic is compelling sovereign investors to re-evaluate their asset allocation strategies and risk management approaches. Numerous sovereign funds and central banks are increasing their exposure to digital currencies to capitalize on the expanding market and its rising value. For example, Norway’s sovereign fund has emerged as a leader in the cryptocurrency market, investing in crypto-related businesses and indirectly owning a significant amount of Bitcoin. By the end of the first half of 2024, this fund held 2,446 BTC, reflecting an increase of 938 BTC since the close of 2023.
Furthermore, the US government currently holds over 200,000 BTC, valued at more than $20 billion, with the majority seized from criminal investigations. The United States is among the 13 nations holding Bitcoin, according to a recent report by crypto exchange River. The United Kingdom and El Salvador, pioneers in the digital currency market, also maintain substantial Bitcoin reserves. The UK reportedly holds approximately 61,200 BTC.
As governments around the world contend with inflation and constraints on money supply, Bitcoin holdings offer a potential hedge against inflation, mirroring the traditional role of gold as a strategic asset within a portfolio. Additionally, Bitcoin’s value exhibits a low correlation with other asset classes, such as bonds and equities, making it a potentially valuable tool in central banks’ risk management strategies.
Central banks often enter into financial arrangements with each other, which introduces counterparty risk, particularly in instances of political instability or non-performance. Unlike traditional currencies, Bitcoin does not rely on central banks to manage its circulating supply. This reality helps central banks that own digital currencies, especially Bitcoin, reduce that third-party risk.
