On January 7, 2025, the Governor of the Czech National Bank, Aleš Michl, proposed a groundbreaking idea to include Bitcoin (BTC) in the country's foreign exchange reserves. This proposal has sparked widespread discussion both domestically and internationally, highlighting the potential of cryptocurrencies as central bank reserve assets. Globally, El Salvador, the first country to adopt Bitcoin as legal tender, has accumulated a Bitcoin reserve of 6,068 units, valued at over $554 million, demonstrating Bitcoin's potential as a reserve asset. Additionally, MicroStrategy, one of the largest institutional holders of Bitcoin, currently holds nearly 480,000 bitcoins, valued at approximately $31.1 billion. These moves provide strong support for Bitcoin's entry into the capital markets.

If the Czech proposal is implemented, it is expected to allocate about 7 billion euros to purchase 70,000 bitcoins. This would make the Czech Republic the world's third-largest holder of Bitcoin, after the United States and China, further promoting the recognition of Bitcoin as a global reserve asset.

The impact of this proposal on the European crypto market could be profound, especially as major economies like France and Germany are experiencing political turmoil. In 2024, France saw massive protests due to pension reforms and high tax burdens, increasing public distrust in the traditional financial system. France may re-evaluate the potential of crypto assets and potentially ease regulations on cryptocurrencies, promoting the development of digital currencies. In Germany, economic slowdown, energy transition, and internal political friction have led to growing public interest in crypto assets, particularly in the application of green finance and blockchain technology. Germany may become more flexible in adjusting its policies in the future.

From a global economic perspective, since the United States implemented quantitative easing policies in 2020, the Federal Reserve has injected over $5 trillion in liquidity into the market. While this has boosted the US economic recovery, it has put pressure on the European economy, with euro appreciation and imported inflation becoming significant issues. In 2022, the inflation rate in the Eurozone reached a record high of 10.6%. Against this backdrop, European countries are pushing for green and digital transformations and using crypto assets to reduce dependence on the US dollar. The Czech proposal for Bitcoin reserves aligns with this need, providing a new economic growth point for the Czech Republic and Europe.

However, the Czech proposal faces challenges, particularly from the European Central Bank (ECB) President Christine Lagarde, who strongly opposes it. She argues that Bitcoin's 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 is not yet part of the Eurozone, its central bank has some monetary policy independence. The Czech Republic may still be able to overcome the ECB's resistance and advance the Bitcoin reserve proposal. Additionally, the Czech government's recent passage of a new law exempting capital gains tax for individuals holding Bitcoin for over three years further demonstrates the country's friendly attitude towards cryptocurrencies and solidifies its position as an innovator in crypto assets.

Despite short-term opposition from the ECB, the Czech government's long-term policy clearly supports this trend. The Czech policy environment and support for Bitcoin will enhance Bitcoin's status as a reserve asset.

In the future, the market will continue to closely monitor several key factors: changes in the ECB's stance, whether the Czech Republic can overcome ECB opposition, and whether the Czech Republic can further advance policies favorable to crypto assets, especially regarding capital gains tax and other related legal adjustments. We will continue to track these key data points and policy dynamics, focusing on their impact on Bitcoin's potential as a reserve asset. An analysis of the Czech situation is as follows:

On January 7, 2025, the Governor of the Czech National Bank (CNB), Aleš Michl, first proposed considering the inclusion of Bitcoin (BTC) in foreign exchange reserves, marking the potential for the CNB to become the first Western central bank to hold crypto assets. This proposal has attracted widespread attention, especially as crypto assets are increasingly valued by global investors. On February 6 of the same year, the Czech government passed a new law exempting capital gains tax for individuals holding Bitcoin for over three years. This policy strongly supports Bitcoin as a strategic asset and demonstrates the Czech Republic's friendly attitude towards cryptocurrencies. According to Michl's statements, the CNB is actively seeking to diversify its reserve assets, planning to increase its gold holdings to 5% of total assets by 2028 and also considering allocating a portion of its foreign exchange reserves to Bitcoin.

Investment Return Potential: Since its inception, Bitcoin has shown exceptional performance, with annual returns reaching 130% in recent years, far exceeding gold (approximately 30%). In the current global economic environment, Bitcoin's performance makes it a potential reserve asset. If more countries include Bitcoin in their reserves, it may challenge traditional "safe" assets like gold.

Market Reaction and Impact: The Czech central bank's proposal to invest 5% of its foreign exchange reserves (about 7 billion euros) in Bitcoin is equivalent to purchasing 70,000 bitcoins. At the current market price of Bitcoin (approximately $100,000 per unit), this would make the Czech Republic the world's third-largest holder of Bitcoin, after the United States and China. This move could trigger market recognition of Bitcoin as a strategic asset and encourage more countries to consider including Bitcoin in their reserves.

Global Trends: Previously, El Salvador and the Central African Republic have adopted Bitcoin as legal tender and included it in their foreign exchange reserves. If the Czech Republic ultimately adopts this proposal, it would become the third country in the world to hold Bitcoin as a reserve asset.

Since Aleš Michl became the Governor of the Czech National Bank in July 2022, the central bank has adopted a tough policy to combat an inflation rate as high as 17.5%, successfully bringing it down to the target level. At the same time, a series of policies have also put pressure on the Czech balance sheet.

To increase the return on foreign exchange reserves, the central bank is pushing for asset diversification, planning to increase the proportion of equity investments to 30% from 2024 (about half in US stocks) 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 reserves to further enrich the asset portfolio and enhance returns.

The Czech Republic is friendly towards cryptocurrencies, with Prague having the highest density of Bitcoin ATMs in Europe, and some merchants already accepting Bitcoin payments. An active crypto community and an open regulatory environment make it an important market for the European crypto industry. The "Digital Strategy 2030" launched in 2022, although not explicitly involving cryptocurrencies, includes support for blockchain technology, providing a favorable external environment for the central bank's adoption of Bitcoin. The Czech central bank's diversification strategy complements the booming crypto market, laying the foundation for future reserve asset innovation.

1. Biography of Czech National Bank Governor Aleš Michl

Aleš Michl has been the Governor of the Czech National Bank since July 2022. He holds a Ph.D. 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 focused on the US stock market and the Czech money market. Michl advocates monetarism and is deeply influenced by Milton Friedman's theories, believing that the central bank's primary task is to control inflation and stabilize the economy through money supply control. He proposed including Bitcoin (BTC) in foreign exchange reserves, arguing that Bitcoin as an emerging asset can not only diversify reserves but also offer high return potential. Especially in the context of increasing uncertainty in global financial markets, its decentralized nature provides a hedge function.

2. Policy Advocacy of Aleš Michl

Michl pointed out that the Czech central bank's foreign exchange reserves are overly reliant on the US dollar and gold, making them vulnerable in the current global economic environment. He advocates diversifying reserve assets through Bitcoin to reduce dependence on traditional assets. Bitcoin's annualized return has reached 130% in recent years, making it an extremely attractive asset class. Although the Bitcoin market is highly volatile, Michl believes that risks can be controlled through appropriate risk management. He hopes to increase the return on reserve assets by including Bitcoin in foreign exchange reserves, especially seeking new growth points outside low-yield gold and fiat currency assets.

3. Czech Policy Advancement and Decision-Making Process

The Czech National Bank's board is conducting an in-depth analysis of the feasibility of including Bitcoin as a foreign exchange reserve asset. According to past decision-making processes, the board needs several weeks to months to assess proposals and ultimately decides whether to implement them through voting. The Czech central bank's policies are relatively independent, meaning that even in the face of external opposition, the central bank can still make decisions based on its own needs. According to past decision timelines, the Czech National Bank's board decisions usually take several months. For example, in 2013, when the Czech central bank decided to intervene in the foreign exchange market to prevent deflation, the decision took about five months from proposal to implementation. The current proposal to include Bitcoin in reserves is still in the analysis stage, and it is expected to take more time to complete the risk assessment.

4. Biography of ECB President Christine Lagarde

Christine Lagarde is the current President of the European Central Bank (ECB), former French Minister of Finance, and former Managing Director of the International Monetary Fund (IMF). She has extensive influence in the global financial sector, promoting financial stability, monetary policy reform, and sustainable global economic development. Lagarde has always emphasized financial stability and inflation control, leading the ECB to adopt loose monetary policies, especially in response to the Eurozone economic crisis. As an experienced financial leader, Lagarde is cautious about crypto assets such as Bitcoin, believing that their high volatility and lack of regulation could pose risks to financial system stability.

5. Policy Advocacy of Lagarde

The Czech central bank's Bitcoin reserve proposal has triggered a strong reaction from the European Central Bank (ECB). ECB President Christine Lagarde publicly stated her opposition to including Bitcoin in reserve assets, citing Bitcoin's high volatility and the risk of concentrated holdings. She said at a press conference following the ECB's interest rate decision: "I believe Bitcoin will not enter the reserves of any central bank on the Governing Council." Her stance is relatively firm.

Lagarde's opposition, although not binding in terms of intervention, especially since the Czech Republic is not yet part of the Eurozone and the Czech central bank has strong monetary policy independence, is still quite strong. Therefore, Lagarde's attitude may influence the Czech central bank's decision-making process. The Czech central bank will need to further assess the risks and potential of Bitcoin at the board level to decide whether to adopt this proposal.

Lagarde's opposition to including Bitcoin in the Eurozone's reserve assets is mainly due to five reasons:

• High Volatility: Bitcoin's price fluctuates dramatically, which could lead to significant value fluctuations in central bank reserves, thereby affecting the stability of monetary policy and the financial system.

• Concentration Risk: The distribution of Bitcoin is uneven, with a few large holders or institutions controlling most of it. This could lead to market manipulation and unfair price fluctuations, posing a threat to the stability of central bank reserve assets.

• Lack of Regulatory Framework: Currently, the Bitcoin and other cryptocurrency markets lack a unified global regulatory framework, making them susceptible to manipulation and fraud, increasing the uncertainty of central bank reserves.

• Non-Compliance with Reserve Asset Standards: Bitcoin lacks the stability and liquidity of traditional reserve assets. Especially in extreme market conditions, it may not provide the liquidity support needed by central banks.

• Financial Stability Concerns: Bitcoin's high volatility could exacerbate systemic risks, especially in economically vulnerable countries, posing a threat to financial stability.

The Czech National Bank's proposal to include Bitcoin in its foreign exchange reserves marks a significant innovation in global central bank asset allocation. If adopted, the Czech Republic would become one of the world's major holders of Bitcoin, promoting widespread recognition of Bitcoin as a strategic reserve asset. This would not only potentially increase the return on the Czech central bank's reserves but also enhance the Czech Republic's competitiveness in the global financial market.

However, the divergence between Czech central bank Governor Michl and ECB President Lagarde highlights the significant differences in the status of crypto assets in the international financial system. Lagarde's strong opposition may influence the Czech central bank's decision-making, especially in terms of monetary policy coordination and financial stability. Despite the Czech Republic's strong monetary policy independence, balancing Bitcoin's high volatility with the stability of reserve assets remains a key challenge for central banks worldwide.

Nevertheless, the Czech government's recent passage of a new law exempting capital gains tax for individuals holding Bitcoin for over three years provides strong support for Bitcoin as a strategic asset, reflecting the Czech Republic's friendly attitude towards cryptocurrencies.

Although the Czech proposal is currently constrained by ECB opposition and the decision to include Bitcoin in reserves is still uncertain, the Czech government's long-term policy direction clearly supports this trend. The Czech policy environment and support for Bitcoin will continue to enhance Bitcoin's status as a reserve asset.

As more countries begin to discuss the possibility of Bitcoin as a reserve asset, the role of cryptocurrencies as strategic assets may be further confirmed. However, finding a balance between high volatility and the stability of reserve assets remains a key challenge for central banks.

Macro Background and Bitcoin's Strong Position

Over the next two years, US dollar assets are expected to remain strong, and Bitcoin, as "digital gold," will continue to benefit from the loose liquidity environment of the US dollar. In the first half of 2025, the US Treasury's release of approximately $700 billion in reserve funds will increase market liquidity, providing support for risk assets like Bitcoin. Despite gradual improvements in supply-side issues in Europe and the United States, global inflation pressures persist, and Bitcoin's anti-inflation characteristics will attract more institutional and individual investors. The approval and growth of Bitcoin ETFs in 2024 have laid a solid foundation, and it is expected that Bitcoin ETF holdings will surpass gold in 2025, becoming an important choice for mainstream asset allocation.

Buy Volume and Price Increase Estimates

Following the launch of Bitcoin ETFs in 2024, institutional funds have flowed in significantly, and this trend is expected to accelerate in 2025. According to Bloomberg data, the asset management scale (AUM) of Bitcoin ETFs exceeded $50 billion in 2024 and is expected to reach over $100 billion in 2025. Retail investor participation will also increase, with the user base of major exchanges expected to grow by 20-30%, driving Bitcoin's daily trading volume to exceed $50 billion. Additionally, following the Bitcoin halving in 2024, miner selling pressure has significantly decreased, and it is expected that miner holdings will remain below 1 million BTC in 2025, further reducing market supply.

Historically, Bitcoin's halving cycle every four years has been accompanied by significant price increases. After the 2024 halving, Bitcoin prices in 2025 are expected to replicate the bull market performances of 2017 and 2021. Based on historical data, Bitcoin prices typically rise by 300-500% within 12-18 months after a halving. Technically, Bitcoin's long-term support level is around $30,000, and the loose liquidity environment in the first half of 2025 could push Bitcoin prices above $100,000, potentially challenging the historical high of $150,000. According to Glassnode data, the number of active Bitcoin addresses and holdings continue to grow, with market sentiment leaning optimistic. It is estimated that Bitcoin prices will rise by 150-200% in 2025, with a target price range of $120,000-$150,000 by the end of the year.

Potential Catalysts and Risks

The integration of AI and blockchain, geopolitical risks, and accelerated global regulatory progress will act as catalysts for Bitcoin's price increase. However, policy uncertainties (such as the US debt ceiling issue) and black swan events (such as a crisis in the yen system) could cause market fluctuations.

In summary, 2025 will be a pivotal year for Bitcoin, with macro liquidity, institutional fund inflows, and technical support collectively driving significant price increases. It is expected that Bitcoin will see a full-year increase of 150-200%, with a target price range of $120,000-$150,000. Investors should focus on the beta trading window in the first half of the year while preparing for a full-year defensive and counterattack strategy.