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Bitcoin may encounter significant challenges in its pursuit of becoming a reserve asset, with regulatory ambiguity, operational requirements, and a limited supply being among the primary hurdles.
During a recent post-election roundtable organized by Nomura, a global financial services firm, panelists examined the extensive economic and market implications of Donald Trump’s re-election, including the potential role of Bitcoin and the obstacles it may encounter in attaining reserve asset status.
Nomura Panel on Post-Election Economy and Market
In light of the new administration, Nomura’s panelists discussed the regulatory and operational challenges Bitcoin would face if it were to be considered for reserve status.
Greg Hertrich, Nomura’s Head of U.S. Depository Strategies, pointed out that regulatory ambiguity is a significant barrier, as there is no established framework to regulate Bitcoin’s function within the financial system, especially concerning U.S. banking structures.
How do the results of the US election affect financial markets and economies in the coming year? Gareth Nicholson, our Chief Investment Officer, tells Bloomberg this week. Watch the full interview here: https://t.co/FPbBgUXBr8. pic.twitter.com/nMCl6DahiW
— Nomura (@Nomura) November 8, 2024
Hertrich also mentioned the operational difficulties for banks in adapting to Bitcoin, which include increased compliance obligations.
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He underscored the necessity for improved anti-money laundering (AML) measures, which would compel banks to allocate resources and expertise to effectively manage digital assets within current regulatory frameworks.
“U.S. banks will need to recruit personnel to handle all of the anti-money laundering, Bank Secrecy Act, types of responsibilities that have already been a considerable expense for them, even when measured in monetary terms,” stated Hertrich.
Bitcoin’s Limited Supply as Reserve Asset
David Seif, Nomura’s Chief Economist for Developed Markets, addressed Bitcoin’s limited supply as an additional challenge.
Seif noted that, in contrast to traditional reserve assets like gold, Bitcoin’s restricted market size diminishes its feasibility for large-scale reserve applications, potentially rendering it unsuitable for significant institutional adoption as a reserve.
“I believe we are quite far from Bitcoin being a reserve in any substantial manner for any major economy. Even though Bitcoin has reached unprecedented highs, its total market cap is still under two trillion dollars,” remarked Seif.
“That is considerably less than the amount of gold available, which is also not in abundance,” Seif added.
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