Chile Rejects Bitcoin in Reserves, Citing Volatility and Regulatory Concerns

• Chile’s Central Bank prioritizes low-risk, liquid assets like gold and securities, excluding Bitcoin from reserve management strategies.
• International reserves aim to ensure economic stability, requiring assets that meet IMF standards of security, liquidity, and quality.

The United States recently proposed the creation of a national Bitcoin reserve, sparking global discussions on the role of cryptocurrencies in national economies.

However, the Central Bank of Chile has explicitly rejected the idea of including Bitcoin in its international reserves, emphasizing the risks associated with the high volatility and unregulated cryptocurrencies.

This stance was reinforced in the wake of U.S. Senator Cynthia Lummis’s proposal to establish a Bitcoin reserve , which was aligned with statements by President-elect Donald Trump, who advocated for a Bitcoin reserve during his campaign.

The Central Bank of Chile addressed these developments and clarified its position on the matter.

Central Bank of Chile’s Position on Cryptocurrency

The Central Bank of Chile stated that it would not incorporate Bitcoin or any other cryptocurrencies into its international reserves, citing their failure to meet necessary legal criteria for such investments.

The bank highlighted that cryptocurrencies do not align with the requirements for reserve assets, which are primarily backed by more stable and regulated entities like gold or government-issued securities.

“The proposals from the US and Brazil reflect how cryptocurrencies are entering the economic agendas of key countries. However, these initiatives also raise questions about the associated risks, especially due to the high volatility and lack of regulation of cryptoassets. This interest has meant that the value of Bitcoin closed at its ATH in November. The financial asset ended November at $96,455,” explained the Central Bank of Chile.

In terms of financial management, the Central Bank of Chile pointed out that the primary purpose of international reserves is to support the country’s economic stability against external financial shocks.

This objective requires that assets held in reserves adhere to stringent standards of safety, liquidity, and overall quality, conforming to International Monetary Fund (IMF) guidelines.

“International reserves are intended to maintain economic and financial stability in the face of adverse external shocks and to conduct exchange rate policy. Therefore, they must meet high security, liquidity and quality criteria, according to IMF definitions, to guarantee central banks their availability with limited impact on the market and access in case they need to be used in periods of crisis.”

The bank further elaborated that Bitcoin’s high volatility and regulatory uncertainties make it unsuitable for reserve purposes. It added that international reserves must be readily available in times of economic crisis with minimal impact on the market, criteria that Bitcoin does not fulfill.

5/7 Ley Orgánica del @bcentralchile lo mandata a invertir en ciertos instrumentos. Se entiende. Pero es negligente ignorar Bitcoin porque es tecnología depredadora, tiene patrón cíclico de adopción, la digitalización es universal, y la economía mundial sufre de deuda desbordada. pic.twitter.com/a35k25twNe

— Jorge H Gatica (@JorgeHGatica) December 1, 2024

Risk Assessment and Reserve Management

The Central Bank of Chile’s conservative approach to reserve management focuses on maintaining assets with high liquidity and low risk, ensuring economic stability. Since 1997, Chile has phased out gold accumulation in its reserves, completely liquidating such holdings by 2000.

Today, it holds only a minimal quantity of gold bullion, reflecting its strategy of minimizing exposure to volatile assets.

Bitcoin (BTC) is currently trading at $95,813 USD, reflecting a slight daily decline of 0.05%. Over the past month, BTC has shown strong growth, gaining 38.19%, and its year-to-date increase stands at 126.76%, confirming its bullish momentum in 2024. However, it remains range-bound below the psychological resistance of $100,000 USD.

Technical Analysis:

Source: Tradingview

BTC is consolidating near the $95,000 – $98,000 range, with the $100,000 level acting as a significant resistance barrier. Technical indicators suggest bullish momentum is intact, but lower volume in recent sessions hints at potential short-term consolidation. 

If BTC breaches $100,000, it could spark a rally toward $110,000 – $120,000 USD. Conversely, failure to hold support at $93,500 might lead to a pullback toward $90,000.