A reserve currency is any currency held in bulk by an organization or government. The U.S. dollar and Euro are two of the most commonly held reserve currencies, though as new cryptocurrencies are introduced and gain popularity, an increasing number of organizations are diversifying their reserves with Bitcoin.
A Bitcoin reserve is simply a reserve fund that is composed primarily of Bitcoin. Its value fluctuates according to the market price of Bitcoin — for example, if one BTC is worth USD 4500, a 1000 Bitcoin reserve would have a value of USD 4,500,000.
The main advantage of a reserve fund is that the larger the fund, the more interest it accrues when the value of the currency rises. Conventional currencies of relatively stable economic zones — such as Europe or the United States — can be expected to deliver reliable returns over time. A large, stable reserve fund is a way of hedging against market or economic uncertainty, and planning for emergencies and other unexpected expenses.
Much in the way that some foreign governments will maintain a reserve fund of U.S. dollars, a Bitcoin reserve is a natural backing for other alt coins. Bitcoin has a larger market capitalization than any other cryptocurrency, and is the best known and highest valued. As a result, alt coins backed by Bitcoin are likely to be more predictable and better positioned to grow in this new economic frontier.
While the use of Bitcoin as a reserve investment is not uncommon among private businesses, to date, no national banks have adopted it as a reserve currency. That may change in the years to come. In August 2017, a group of Australian senators proposed that that country’s reserve bank begin holding Bitcoin as a way of making its financial services industry more versatile and forward-thinking.
The fact that officials and the media are treating the proposal with any measure of seriousness speaks to the growing potential for incorporating cryptocurrency into global capital markets. Beyond Australia, Sweden, among other countries, is currently researching the possibility of implementing similar policies.
A 2015 survey by U.K.-based Magister Advisors revealed significant confidence in the future of Bitcoin prices and other cryptocurrencies. Respondents predicted that, by 2030, Bitcoin would be the sixth-largest reserve currency in the world. Around the same time, Bank of America, Goldman Sachs, Deutsche Bank and other major financial institutions joined an industry-wide project exploring the mainstream possibilities of blockchain-based currency technology.
The more major organizations adopt cryptocurrency such as Bitcoin and alt coins, the more it will become a stable investment with long-term viability. If you’re considering getting into this growing market, consider Aureus. Our cryptocurrency is backed by a reserve of 15,000 Bitcoin held in the Aureus Bitcoin Trust and managed by the investment firm Cryptocrest, whose longstanding investment expertise spans both conventional and blockchain-based assets. Furthermore, Selachii DAA, a trusted third-party custodian of digital assets, helps oversee the fund to ensure its ethical, forward-thinking management.
To learn more, download our white paper or contact a representative directly.