Swiss National Bank Rejects Bitcoin Reserve Due to Volatility Concerns

The Swiss National Bank (SNB) has reiterated its stance against holding Bitcoin in its reserves, citing concerns over market liquidity and volatility. SNB President Martin Schlegel emphasized that while Bitcoin can exhibit high liquidity at times, this liquidity can become unstable during crises. He also highlighted Bitcoin's notorious volatility, which makes it unsuitable for preserving long-term value, a key function of a reserve asset. Schlegel concluded that Bitcoin is not an appropriate asset for the SNB’s reserve at this time.

The Bitcoin Initiative, a group advocating for an SNB reserve, presented a counterargument. They suggested that if the SNB had added 1% of Bitcoin to its reserve, it would have nearly doubled its returns with only a slight increase in portfolio volatility. The group also noted Bitcoin's resilience to market stress and its liquidity even with large sums of capital. However, Schlegel disagreed, stating that a reserve requires a high level of liquidity to rapidly buy and sell foreign currencies, and that Bitcoin's volatility makes it difficult to include in the portfolio. He reiterated that the SNB needs to maintain control over the reliability of its reserves, and that Bitcoin's high volatility makes it a risky asset.

The Bitcoin Initiative believes that the SNB should consider a Bitcoin reserve to offset risks, such as those caused by tariffs, and to diversify its reserves by including what they refer to as digital gold. A referendum campaign has started to amend the constitution and force the SNB to hold both Bitcoin and gold reserves. However, Schlegel remains firm in his strategy, stating that liquidity and volatility are factors that discount Bitcoin. He claims that the bank should be able to buy and sell currencies at any time.

Schlegel has consistently opposed the idea of a Bitcoin reserve, stating that the SNB has no plans to buy cryptocurrencies. He argued that foreign exchange reserves are strictly for implementing monetary policy and that crypto is difficult to preserve value over time due to its significant price fluctuations. He also pointed out that crypto, being software, could be prone to security risks such as data breaches and software bugs. The SNB's conservative approach focuses on implementing monetary policy, and it remains to be seen whether the bank will change its strategy in the future.

The SNB's rejection of Bitcoin is not a new development. The bank has consistently opposed the idea, despite growing global interest in cryptocurrencies. This resistance comes at a time when there is a referendum campaign underway to amend the Swiss constitution, advocating for the SNB to hold Bitcoin alongside gold in its reserves. Activists and proponents of the campaign argue that embracing Bitcoin could modernize Switzerland's financial system and align it with the digital age. However, the SNB remains steadfast in its belief that Bitcoin's inherent volatility makes it unsuitable for inclusion in national reserves.

The SNB's decision to maintain its conservative strategy is rooted in its mandate to ensure price stability and financial system security. The bank's primary focus is on managing inflation and maintaining the value of the Swiss franc, rather than engaging in high-risk investments. This approach has served Switzerland well, as the country is known for its stable economy and strong financial sector. The SNB's cautious stance on Bitcoin reflects its commitment to these principles, even in the face of growing pressure from cryptocurrency advocates.

The SNB's rejection of Bitcoin also highlights the broader debate surrounding the role of cryptocurrencies in the global financial system. While some countries and institutions have begun to explore the potential of digital currencies, others remain skeptical. The SNB's position underscores the need for careful consideration and thorough evaluation before integrating new technologies into established financial frameworks. The bank's decision to maintain its conservative strategy is a reminder that stability and security should remain the top priorities for central banks, even as they navigate the rapidly evolving landscape of digital finance.