Will the Entry of Central Banks Mark the End of Bitcoin’s “Freedom Dream”?

If you’ve been following Bitcoin, you may have noticed its role is undergoing subtle yet profound changes. From its origins as a “decentralized rebel” to now being explored by governments worldwide for inclusion in official reserves, this shift is not just a market trend but a fundamental reshaping of the financial landscape.

Today’s discussion stems from a major announcement yesterday (January 29), when the Governor of the Czech National Bank declared plans to purchase Bitcoin. This news is particularly significant because he is the first central bank governor to publicly announce such a move. The implications of this are enormous, and I will delve into them in detail.

However, this alone is not enough. What I want to convey in this article is the inherent contradiction of Bitcoin as a central bank reserve asset and how you and I can leverage this paradox to protect ourselves from being collateral damage when giants collide. If you’re a beginner, don’t worry — I’ll provide a zero-based Bitcoin buying guide.

But first, let’s examine the Czech National Bank’s Bitcoin reserve plan.

On January 15, 2025, the global financial market was shaken by a bombshell announcement — the Czech National Bank (CNB) publicly stated that it is considering allocating up to 5% of its foreign exchange reserves into Bitcoin.

While national-level Bitcoin purchases are no longer unprecedented — after all, El Salvador became the first country to adopt Bitcoin as legal tender in 2021 — this time, the protagonist is a central bank, not the government of a small, dollar-dependent nation. Unlike El Salvador’s move, which was largely seen as a political and economic strategy, the Czech National Bank’s plan reflects a deeper financial rationale. As the country’s highest financial authority, a central bank’s decisions undergo rigorous risk assessments and are based on long-term reserve management and asset allocation logic. In contrast, El Salvador’s Bitcoin policy was more of a government initiative, whereas the Czech central bank’s action could lay the groundwork for Bitcoin’s inclusion in global central bank reserves, marking a major milestone in financial evolution.

The Czech National Bank’s total foreign exchange reserves amount to approximately €140 billion (around $146 billion). A 5% allocation means that over €7 billion could potentially flow into the Bitcoin market. If implemented, the Czech Republic may become the first country to officially hold Bitcoin as a reserve asset.

1. A Central Bank’s Hedging Strategy: Czech National Bank Governor Aleš Michl has a background in investment banking and understands that in an era of global inflation and currency devaluation, gold alone is insufficient as a hedge. Therefore, the Czech National Bank plans to increase its gold reserves to 5% by 2028 while also allocating to Bitcoin — “digital gold” — to create a more resilient reserve system.

2. Legal Barriers Have Been Removed: The Czech Parliament recently passed a law stipulating that Bitcoin holdings exceeding three years are exempt from capital gains tax (pending presidential approval). This policy signals that the Czech government is beginning to view Bitcoin as a long-term investment asset. The tax exemption not only reduces Bitcoin holders’ costs but also creates a more favorable legal environment for the central bank’s investment. The underlying logic here is that long-term Bitcoin holdings can mitigate short-term volatility risks while providing a potential hedge during global macroeconomic turbulence.

3. The Impact of Global Macroeconomic Trends: Frequent shifts in monetary policies, soaring inflation, and ballooning debt have become global issues in recent years. Bitcoin’s “borderless” nature makes it a compelling candidate for a global reserve asset.

This decision not only signifies official recognition of Bitcoin’s value but also suggests a deeper shift in the composition of global central bank reserves. It could even encourage other countries to follow suit.

At the same time, however, skeptics question the Czech National Bank’s “Bitcoin purchase plan.” Bitcoin is notorious for its high volatility — is it really suitable as a national reserve asset? More importantly, Bitcoin has long symbolized “decentralization” and opposition to central banks. Now that a central bank itself is buying Bitcoin, does this mean Bitcoin is being absorbed into the sovereign financial system, fundamentally altering its original ethos?

When Bitcoin was created in 2008, it was a protest against central banks and government interference in the monetary system — a decentralized, unregulated financial experiment. Yet over a decade later, this digital asset, once considered a “financial rebel,” is gradually being absorbed into the global financial system, even becoming part of central bank strategy. This transformation is riddled with contradictions and forces the market to reconsider Bitcoin’s future.

Historically, Bitcoin has been regarded as a hedge asset, used by private investors to combat inflation and fiat currency depreciation. But the entry of central banks is shifting this narrative. When the Czech National Bank announced its intention to allocate 5% of its foreign exchange reserves to Bitcoin, the market’s reaction wasn’t just excitement — it was also uncertainty: Is Bitcoin being absorbed into the traditional financial system? Is it becoming just another tool for central banks?

Aleš Michl, the Czech central bank governor, is a market-savvy investment banker. He bluntly stated in an interview: “I am an investment banker, and I like profits.” In his vision, Bitcoin is not only an inflation hedge but also a strategic asset that can yield long-term returns. The Czech National Bank’s calculations suggest that if it had allocated 5% of its reserves to Bitcoin over the past decade, its annual returns could have increased by 3.5%, albeit with doubled volatility. This data is the clearest evidence of Bitcoin’s financialization trend.

But can Bitcoin truly become a core central bank reserve asset?

Its supply is fixed and beyond the control of any single country. However, as central banks begin to accumulate Bitcoin, market dynamics could shift — potentially contradicting Bitcoin’s original purpose.

Bitcoin’s volatility is a double-edged sword: in a bull market, it can generate enormous returns; in a downturn, its extreme price swings can lead to massive losses.

Before central banks got involved, Bitcoin markets were primarily driven by institutional investors and retail traders — highly volatile but relatively free. However, if central banks start holding large amounts of Bitcoin, they could wield significant market influence. A surge in government-driven Bitcoin purchases might inflate prices, creating a scenario similar to gold markets, where governments play a dominant role. Conversely, if central banks begin offloading Bitcoin for policy reasons, they could trigger severe market crashes.

Moreover, increased regulation is inevitable.

If Bitcoin becomes a central bank asset, will governments impose stricter KYC (Know Your Customer) policies, tax regulations, or even trading restrictions? The U.S. government has already discussed establishing a “National Bitcoin Reserve,” which could gradually push the market toward greater regulation. The freedom to hold and trade Bitcoin, as it exists today, may not last forever.

From a symbol of decentralization to a financial asset embraced by central banks, Bitcoin’s future remains uncertain. Will it become an asset controlled by central bank policies, or will it maintain its decentralized essence? Regardless, the next five years will be a defining test for Bitcoin in the evolving global financial system.

If central banks accumulating Bitcoin is just the first step, the next logical extension is gaining control over Bitcoin mining. Once nations move beyond holding Bitcoin to actively engaging in mining, achieving over 51% control of the network’s hash power will no longer be an unreachable goal.

Previously, Bitcoin’s security was believed to stem from the decentralization of its mining power. However, if state actors enter the mining sector on a large scale, this assumption will be severely challenged.

Amid intensifying global competition, control over hash power is becoming a new form of strategic digital resource. If a country or coalition gains control of more than 51% of Bitcoin’s mining power, it would have the ability to:

• Censor Transactions: Selectively package transactions or even prevent certain transactions from being confirmed, stripping Bitcoin of its decentralized, censorship-resistant nature.
• Execute Double-Spend Attacks: An entity with overwhelming hash power could potentially conduct double-spending attacks, undermining trust in the Bitcoin network.
• Manipulate Markets: Governments or institutions could influence market trends by adjusting mining difficulty or strategically controlling hash power to create artificial price fluctuations.

More seriously, this kind of hash power arms race could lead to a massive waste of resources. Bitcoin mining is already an energy-intensive industry, and if states engage in an arms race for mining dominance, it could spiral into an unsustainable cycle of excessive resource consumption. Nations may pour vast amounts of capital into securing control over Bitcoin’s network, transforming it from a decentralized peer-to-peer currency into a tool for financial and geopolitical competition.

Against this backdrop, Bitcoin’s status as “digital gold” could be redefined. It may no longer be just an inflation hedge or a part of central bank reserves, but rather a strategic asset wielded by governments in geopolitical power struggles. Over the next five years, we may witness the nationalization of Bitcoin mining, the escalation of hash power competition, and even a potential “Bitcoin Cold War,” where nations engage in prolonged battles to control mining resources.

For individual investors, this evolving landscape poses significant risks. On one hand, Bitcoin’s price may experience increased volatility due to government intervention and hash power control. On the other hand, if Bitcoin becomes overly dominated by state actors, its decentralized ethos and independence may be severely compromised. As a result, understanding Bitcoin’s evolving role within the global financial system will be crucial for making informed investment decisions.

As Bitcoin transitions from a decentralized asset to a central bank reserve, and even toward a potential weaponization of mining power, how should ordinary investors adjust their strategies to safeguard their interests?

Bitcoin’s market landscape is shifting rapidly. The involvement of central banks, governments, and large institutions introduces unpredictable policy risks. Investors must closely monitor global Bitcoin policy developments, such as changes in regulations on Bitcoin trading, mining, and taxation.

For example, the U.S. government’s discussions about a “National Bitcoin Reserve” could significantly impact market liquidity. Additionally, geopolitical conflicts, shifts in central bank reserves, and macroeconomic factors will become key variables influencing Bitcoin’s price. Understanding these regulatory and macroeconomic contexts will help investors remain rational during periods of market turbulence and avoid emotionally driven decisions.

Dollar Cost Averaging (DCA) is one of the most stable investment strategies in a highly volatile Bitcoin market. Instead of making a lump-sum investment, a DCA approach involves consistently purchasing Bitcoin in fixed amounts over time. This strategy smooths out entry costs and reduces the impact of short-term market fluctuations.

For example, instead of investing a large sum all at once, allocating 5% of your investment budget to Bitcoin each month allows for a more stable long-term accumulation. Historical data shows that long-term Bitcoin holders have generally achieved higher returns. Thus, the DCA approach remains one of the best ways to manage uncertainty in the Bitcoin market.

In the context of Airdrop Reference’s ARP2 strategy, which incorporates both BTC and JLP (a liquidity asset), combining DCA with an aggressive rebalancing mechanism could be an optimal approach.

Despite being dubbed “digital gold,” Bitcoin remains a high-volatility asset, and overconcentration in Bitcoin poses unnecessary risks. For individual investors, a well-balanced investment portfolio should include a mix of assets, such as stocks, bonds, gold, and other cryptocurrencies.

A common recommendation is to allocate 5%-15% of an investment portfolio to Bitcoin, depending on one’s risk tolerance. Additionally, investors should stay aware of broader market trends — if Bitcoin becomes widely held by central banks and faces increased regulation, its long-term risk-reward profile may shift. Investors should be prepared to adjust their Bitcoin allocations accordingly to adapt to new market dynamics.

For beginners or those who do not wish to actively manage their Bitcoin investments, a simple approach is to buy Bitcoin once and transfer it to a cold wallet for safekeeping. Here, I provide two beginner-friendly guides — one on how to buy Bitcoin and another on how to set up a cold wallet — which should be enough to get you started.

Bitcoin stands at a historical crossroads. The entry of central banks has disrupted its original decentralization narrative, igniting a battle between sovereign finance and monetary freedom. From the Czech National Bank’s plan to allocate 5% of its foreign exchange reserves to Bitcoin to the potential adoption by global central banks, Bitcoin is undergoing a profound transformation from a “financial renegade” to a “national reserve asset.”

This shift not only necessitates a reassessment of Bitcoin’s value but also raises the likelihood of tighter regulations, intensified hash power competition, and even a potential “Bitcoin Cold War.”

How can individual investors survive in this rapidly changing environment?

1. Maintain a clear perspective — The involvement of central banks signals the irreversible financialization of Bitcoin. The market’s driving forces are shifting from early adopters and tech enthusiasts to institutions and governments. Investors must remain aware of policy risks and potential market manipulations.
2. Adopt a rational investment strategy — Given Bitcoin’s high volatility, DCA (Dollar Cost Averaging) and portfolio diversification remain the best defensive strategies. Avoid making impulsive decisions driven by short-term price fluctuations.
3. Secure your assets — If regulations tighten and hash power wars escalate, individual ownership of Bitcoin could face increasing restrictions. Learning how to safely store Bitcoin and maintain financial sovereignty may prove more crucial than any investment strategy.

At its core, Bitcoin represents freedom — but its future depends on how the global financial system chooses to engage with it. More importantly, it depends on how you choose to use it.

As this financial upheaval unfolds, do you believe Bitcoin can preserve its decentralized spirit?

One thing is certain: the true winners will always be those who deeply understand the rules of the game and can think independently within it.

Airdrop Reference is an innovative blockchain education and promotion platform aimed at spreading basic blockchain knowledge and helping ordinary users understand and participate in the development of blockchain technology. The mission of this project is to lower the entry barriers to blockchain, promote high-quality blockchain projects, and allow more people to enjoy the benefits of the Web3.0 era.

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