Will Central Banks Hold Bitcoin in 2021?

Central banks (CB) will hold bitcoin sooner or later, says Krüger. The reason, he says, has to do with gold and how central banks treat it.

In a series of tweets, Krüger shows how demand for gold has changed in 2020. 

I've changed my mind.

Major central banks will eventually hold #Bitcoin as a reserve asset.

So let's explore how central banks' gold demand looks like ✕

— Alex Krüger (@krugermacro) January 1, 2021

Habits Are Hard To Break

Krüger starts by showing that central bank demand for gold remained steady for much of the past ten years. However, it dropped tremendously in 2020. He also draws attention to the point that adding liquidity drives gold prices higher.

So, who bought gold? Without going into detail as to why CBs cut their gold intake so much, Krüger does point out that institutional investors dominated demand in 2020. Jewelry, on the other hand, fell off, as the demand is price sensitive.

The Big ‘If’

At this point, Krüger makes an assumption. He tweets:

Assume now in five years central bank's demand for bitcoin stands at 5% of their gold demand. That would generate $1.2 billion in additional bitcoin buying pressure.

— Alex Krüger (@krugermacro) January 1, 2021

If CBs buy into bitcoin with just 5% of their gold demand, that would increase demand for the leading crypto by over $1 billion. Krüger sees the entry of the first CB as an event with some consequences.

Prices would jump on the news, and speculators would pile in. However, CB for gold demand would only rise. As Jorge Schneider put it:

Small becomes a tidalwave…

— Jorge schneider (@Jorgeschneide64) January 1, 2021

Can Krüger Make a Case for It?

Can Krüger make a case for central banks holding bitcoin? Central Bank Digital Currencies (CBDCs) are on the horizon. But are they a bitcoin killer? 

Regarding CBDCs, the answer is that they are probably not bitcoin killers. In fact, there is the possibility that a digital stablecoin could come of it. But the purpose of most CBDCs currently under testing is to create a viable means of transactions.

As BeInCrypto reported, China is testing its digital yuan for retail purchases already. A pilot launch for P2P transfers started in December. So far, the European Central Bank and others are declaring the same: digital currencies extend our ability to make transactions.

Bitcoin, however, appears to be a store of value more than anything else. The 2020 bull run was not about buying pizza or coffee with bitcoin. In part, it was connected to the long-predicted increased interest by institutional and enterprise investors such as GrayScale and MicroStrategy.

Is Krüger right about CBs investing in bitcoin in five years? Or perhaps even this year? Institutional investors took time to become pro-crypto. Only time will tell whether this store of value becomes interesting for the mother of all buyers as well.

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