The Philippine Congress is considering House Bill No. 421, which would mandate the Bangko Sentral ng Pilipinas (BSP) to buy 10,000 Bitcoins over five years and hold them as a sovereign reserve asset for at least 20 years.
This is a stark departure from the BSP’s conservative mandate under the New Central Bank Act, which confines official reserves to traditional safe assets like gold, major foreign currencies, and investment-grade securities. By design, official reserves are ultra-conservative.
House Bill 421 would upend this paradigm. Bitcoin fails nearly every traditional benchmark for reserve suitability. Its market value can swing wildly in short spans: recent data show Bitcoin’s annualized volatility around 54%, compared to just 15% for gold or 10% for global equities.
Bitcoin remains untested as a reserve asset. No major central bank includes it in official reserves, and for good reason. The European Central Bank’s stance is unequivocal: crypto assets in central bank reserves are unacceptable.
The World Bank has similarly cautioned that crypto-assets fall short of meeting the basic requirements for reserve assets, given their volatility, lack of intrinsic value, and reliance on speculative interest.
Asset classes follow a pecking order based on the degree of risk. At the lowest-risk end are short-term government securities. Moving up the ladder, long-term government bonds introduce more risk but are still backed by sovereign issuers.
Higher comes blue-chip equities, which carry market volatility and business risk in exchange for growth potential and dividends. And at the very top of the risk pyramid sit crypto-assets like Bitcoin, the most speculative of the lot.
By positioning Bitcoin reserves at the same level as dollars or gold, House Bill 421 effectively jumps from the base of the asset class pyramid to its pinnacle in one leap. It urges the BSP to swap a portion of its safe instruments for the most volatile asset class available.
This is a radical inversion of prudent asset management. It’s akin to a pension fund moving retiree money from Treasury bills straight into penny stocks, a gamble no responsible fiduciary would countenance.
Bitcoin has delivered eye-popping gains historically, but those came with gut-wrenching crashes.
Holding Bitcoin is not like holding dollars in a bank or gold in a vault. Crypto assets are held via cryptographic private keys. If those keys are lost or stolen, the assets can vanish without recourse. Can the BSP or any government entity guarantee ironclad security for a large Bitcoin trove over 20+ years?
A single lapse in cybersecurity or an insider threat could erase a chunk of the nation’s reserves. This is not a hypothetical fear. Billions of dollars in Bitcoin have been stolen from exchanges and wallets over the past decade.
The bill compels the BSP to execute a speculative investment strategy. Internationally, such a move might put the Philippines at odds with IMF guidelines. Ukraine’s central bank, for example, noted that including crypto in reserves would violate their IMF program criteria.
Bitcoin, or any crypto-asset for that matter, is simply unfit to be part of central bank reserves.
The author is a lawyer and founder of the law firm Geronimo Law and financial advisory firm Strago. He is a professor of law and finance, author, and athlete.
