Bitcoin has experienced significant price fluctuations, with its value recently dropping by 23% from its January peak of US$109,000 to around US$83,450. The BOK expressed concerns that such volatility could lead to unpredictable transaction costs, making Bitcoin an unreliable reserve asset. According to the IMF, reserve assets must be liquid, marketable, and have an investment-grade credit rating. Bitcoin does not fulfill these criteria due to its speculative nature, regulatory uncertainties, and lack of intrinsic value backed by sovereign assets. The BOK also warned that if the crypto market experiences instability, transaction costs associated with converting Bitcoin into cash could surge. This presents a significant risk for a central bank that requires swift and cost-effective liquidity management.
Nations like Japan, Switzerland, and the European Central Bank share South Korea’s cautious stance, citing similar concerns over volatility and regulatory uncertainties. In contrast, the United States has taken a different route, with President Donald Trump recently signing an executive order to establish a Strategic Bitcoin Reserve. This initiative aims to hold Bitcoin and Ethereum obtained from criminal seizures, signaling a more open attitude toward incorporating digital assets into national reserves. Some countries, including the Czech Republic and Brazil, have explored incorporating Bitcoin into their reserves, driven by the potential for digital assets to act as inflation hedges and alternative stores of value.
While rejecting Bitcoin as a reserve asset, South Korea continues to develop its cryptocurrency regulatory framework. The government is easing restrictions on institutional crypto trading and establishing new oversight mechanisms for stablecoins. Additionally, a proposed amendment to make the Virtual Asset Joint Investigation Unit a permanent entity indicates stronger enforcement against crypto-related crimes.
The BOK’s decision to exclude Bitcoin from its reserves underscores a broader skepticism among major economies regarding the integration of volatile digital assets into traditional financial systems. However, South Korea’s ongoing regulatory advancements in the crypto sector suggest a nuanced approach; prioritizing financial stability while fostering controlled innovation in digital finance. As the global debate over Bitcoin’s role in national reserves continues, South Korea’s cautious stance reflects a balancing act between safeguarding economic stability and adapting to the evolving digital asset ecosystem.