I calculated the Bitcoin circulating supply equivalent of Central Bank gold reserves.pic.twitter.com/lSTvK7Szkh
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If the Dutch Central Bank wanted to hold as much weight in the Bitcoin world as it does in the Gold world, it could do that by investing $250M in BTC today.pic.twitter.com/OE6Hb78P0j
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Weight or control is not why central banks hold gold, and it wouldn't be why they'd buy Bitcoin.
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A central bank holds gold because they need a portion of their reserves that is trust-minimized and therefore a fallback to and anti-correlated with trust-based assets like government bonds and foreign currencies.
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Once their need for trust minimization (which varies greatly depending on their political circumstances) outweighs the risks from Bitcoin's greater volatility, they will start to switch -- the ones with the greatest such needs much sooner than the ones with the least, naturally.
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Volatility can be sold using derivatives while keeping the trust-minimized underlying, so a liquid and mature derivatives market may advance government adoption.
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No, the trust-minimized underlying has to pay a big premium for this artificial construct. Also how do you do this in a trust-minimized way, without an oracle?
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You could sell futures contracts in a traditional exchange matching bitcoin holdings (volatility hedge is not trust-minimized). The cost equals convenience yield associated to holding the underlying until expiry (the price of trust minimization) of course.https://twitter.com/fnietom/status/1084815552223285248 …
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A centralized exchange isn't trust-minimized. The holders of the longs and the shorts (the latter needed to hedge the volatility of the underlying) would, unlike the underlying, have political vulnerability, eliminating which was the whole point of the exercise.
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A central bank could keep part of its holdings in bitcoin (trust-minimized) even if it uses a trust-based hedge to eliminate bitcoin volatility exposure. These are risks of a very different magnitude, it's not the same risking the hedge as risking the principal.
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That's an interesting idea.
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Why would they?
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Value
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