Today, a report emerged indicating that Chairman of the Swiss National Bank (SNB) Thomas Jordan commented on the liquidity of the “cryptocurrency” market.
“Cryptocurrencies are not liquid enough for the bank to have as one of its investment assets,” Jordan said.
While the chairman did not mention bitcoin by name specifically, bitcoin is by far the most liquid asset in the cryptocurrency market, and is the only logical choice for the central bank to add to its balance sheet among all “cryptocurrencies,” so it stands to reason that he is dismissing bitcoin’s liquidity.
In its 2020 annual report, however, the bank reported an asset allocation of 91% foreign currency investments, 5% gold, 1% Swiss bonds and 3% miscellaneous assets, totaling 999,027,900,000 CHF (or $1,094,506,994,458).
Digging into the report, and SNB’s strategy in general, it becomes clear that Jordan does not understand bitcoin, its liquidity or its position in relation to the investment assets that he does consider to be “liquid enough.”
“The most important element for managing absolute risk is broad diversification of investments. Risk is managed and mitigated by means of a system of reference portfolios (benchmarks), guidelines and limits. All relevant financial risks associated with investments are identified, assessed and monitored continuously. Risk measurement is based on standard risk indicators and procedures. In addition to these procedures, sensitivity analyses and stress tests are carried out on a regular basis. The SNB’s generally long-term investment horizon is taken into account in all of these risk analyses…
The currency reserves are mainly composed of gold, bonds and shares. The diversification effects achieved by adding shares to a portfolio, as well as equities’ high liquidity, make them an attractive asset class for the SNB. Furthermore, given that expected return is higher on shares than on bonds, this asset class helps to preserve the real value of the…