Bitcoin reserve becoming the norm would be a paradigm shift, a fundamental change in what defines collateral in the 21st century.
With the coming of the fourth revolution, the integration of digital technology permeates every aspect of modern life, including transactions.
Who would have thought one hundred years ago that people would be transacting in codes on a digital ledger on the blockchain?
Darren Winters points out that peer-to-peer, mobile, contactless payment systems are frequently used by the smartphone generation.
In European countries, mobile payment systems include mobile wallets like Apple Pay and Google Pay, bank transfer options, and instant payment services like Bizum.
“Yappy”, in central America, is a mobile payment app that allows users to send and receive money instantly using their phone number.
The digital generation transacts with smartphones. Physical cash is giving way to digital codes. Bitcoin cash, created in 2017, was intended to speed up transaction times and maintain a position as a payment method.
From digital payments to digital collateral, Bitcoin reserve
But what happens when collateral goes digital and shines brighter than sovereign bonds?
Generations of investors believe that treasury bonds, the sovereign debt of G7s, are prime collateral, a safe haven asset with minimal risk of capital loss.
A sovereign debt default, when a government is unwilling or unable to pay back its debts in full, is one risk facing bond investors.
Over the past decade, between 0.3% and 0.6% of global public debt has defaulted.
However, currency debasement inflation, where the currency’s purchasing power diminishes over time, is the hidden risk for bond investors.
A debt spiral can be triggered by high-interest payments, where the national debt grows exponentially each year, and the government goes further into debt to pay the higher interest on the debt, which is the beginning of a debt death spiral.
Imbalances in the bond market, where the oversupply exceeds investor demand for bonds, increase the maturity risk of holding bonds.
The 2023 treasury bond market crash, resulting in at least six bank failures in the same year, was a wake-up call for bond investors.
Investors can put capital at risk by investing in long-maturity bonds even if those bonds are treasuries, denominated in the USD world reserve currency. Sovereign bonds are safe when investors trust the system, believe that government spending is sustainable, fiscal discipline and when monetary policy is verifiable.
The ballooning interest payments, over one trillion dollars on a national debt of over 36 trillion dollars and growing, could have changed the perception of bonds as a safe haven asset prime collateral.
On the cusp of a new era, a bitcoin reserve?
The world needs a safe store of value, and since time immemorial, there have been precious metals, particularly gold.
In the digital age, a bitcoin reserve is even being discussed in Davos 2025 as a possible, new reserve to rival gold
Who would have thought a decade ago, the world’s power brokers and elites would even be discussing a Bitcoin reserve?
Indeed, the once-dismissed digital asset is now becoming recognized as a legitimate and vital component of the financial system.
The bellwether cryptocurrency is emerging as a hedge against currency debasement, an investment vehicle for institutions, and even a strategic reserve for sovereign states.
Darren Winters noted last year El Salvador became the first nation-state to adopt BTC as legal tender in 2021 and has now accumulated over 6,000 BTC worth $622 million as a strategic reserve.
Central Banks And Sovereign Funds Grow Crypto Reserves
“The new trend is forcing sovereign investors to reassess their asset allocation strategy and risk management. Many sovereign funds and central banks have upped their digital currency exposure to capitalize on the growing market and its value. For example, Norway’s sovereign fund has become a cryptocurrency market leader by investing in crypto-related businesses,” wrote Global Finance.
In 2024, 13 nations are holding bitcoin, according to a recent report by the crypto exchange River. The UK and El Salvador hold significant bitcoin reserves. The UK has approximately 61,200 BTC, according to the report’s authors.
So, a Bitcoin reserve is no longer an idea but a reality, the bellwether cryptocurrency is becoming an integral part of the financial system.
What does a Bitcoin reserve mean for investors?
As noted previously, what could drive bitcoin prices further and the 3.6 trillion dollar crypto market is the adoption of bitcoin as a strategic reserve.
With 13 nations already dipping their toes into bitcoin as a strategic reserve and a bitcoin reserve discussed in Davos 2025, the crypto bull market could be in its infancy.
Capital flows into a Bitcoin reserve could be in its infancy
As of 2024, the global gold market capitalization is estimated to be around $17 to $18.4 trillion, based on its total above-ground supply and current market price.
As of January 2025, the U.S. Treasury market was valued at $28.3 trillion. This makes it the world’s most liquid and deepest government bond market.
Bitcoin has a market capitalisation of 2 trillion dollars in 2025.
So if Bitcoin is perceived as the new store of value, collateral rivalling gold or even treasuries, if just 10% of reserves flow out of gold and treasuries into a Bitcoin reserve, that is about 4.6 trillion dollars more into Bitcoin.
The supply of bitcoin remains fixed, so if an additional 4.6 trillion dollars flows into bitcoin, its price could easily double from here.
But, if capital flows out of bonds, yields could go higher unless central banks start QE, which is potentially inflationary.
A Bitcoin reserve would benefit Bitcoin and the crypto market, but that would be to the detriment of gold prices and other safe stores of value.