Czech National Bank Governor Aleš Michl says the country’s Bitcoin (CRYPTO: BTC) $1 million purchase is meant to "touch reality" as he warns the asset could soar or collapse.
Governor Says Goal Is Real-World Experience, Not Models
Michl said on Nov.25 the CNB created the portfolio to gain hands-on experience with digital assets instead of depending on theoretical models.
He described the initiative as an experiment aimed at understanding tokenization, custody processes, and the operational mechanics of digital assets inside a central-bank environment.
He said the bank included Bitcoin because it behaves like gold, showing low correlation with traditional assets and helping diversify large portfolios.
Michl noted Bitcoin's volatility had recently mirrored major tech names, including Nvidia Corp. (NASDAQ:NVDA), Meta Platforms Inc. (NASDAQ:META), and Tesla Inc. (NASDAQ:TSLA).
Michl told Central Banking that Bitcoin's long-term value "could plausibly end up at two extremes – very high or zero."
Portfolio Includes Bitcoin, Stablecoins And Tokenized Deposits
The CNB assembled the test portfolio on Oct. 30 through a market operation conducted outside its international reserves.
It includes Bitcoin, dollar-denominated stablecoins, and tokenized deposits.
At the time of purchase, Bitcoin traded near $110,670.
The bank said it will not expand the portfolio and noted that its small size will not meaningfully affect overall financial performance.
It will focus on custody design, key management, multi-level approval structures, AML controls, and how digital assets should be reported in financial accounts.
Backtests Suggest Diversification Benefit With Higher Volatility
Michl said CNB simulations showed that a 5% Bitcoin allocation would have boosted annual returns by roughly 3.5% points over the past decade.
He added that this gain would have come with sharply higher risk, doubling overall portfolio volatility.
Over the past five years, he said bitcoin had outperformed equities on a risk-return basis.
He added that if the bank were seeking higher expected returns, allocating about 2.5% of reserves into a bitcoin ETF would have been more efficient than increasing U.S. equity exposure from 38% to 50%, based on historic data.
Operational And Legal Hurdles Remain Significant
A 50-page CNB technical study highlights the operational hurdles of storing and managing Bitcoin.
It warns that the risk of losing private keys is unlike anything seen in traditional asset management.
The study reviewed hardware wallets, multi-party computation, and co-custody structures, concluding that co-custody with a specialized provider was the most secure.
The CNB has consulted the European Central Bank and the IMF, which agreed that directly held Bitcoin cannot be classified as an official reserve asset.
Instead, it would be listed as "tangible and intangible assets" on the balance sheet and valued at the lower of its acquisition price or fair value.
European Central Banks Offer Mixed Views
Central Banking contacted major European central banks for comment.
The ECB, France, Spain, Switzerland, the UK, and others declined to comment.
The Swiss National Bank said cryptocurrencies do not meet its reserve policy requirements.
The Netherlands Bank said adding any new asset class demands a full strategic review before consideration.
Ukraine's central bank warned that Bitcoin would create additional vulnerabilities, especially under wartime financial-stability pressures.
Serbia's central bank said current law does not allow digital asset holdings in reserves but added that it continues to monitor global developments.
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