Crypto has a long way to go

Cryptoasset markets have expanded significantly over the last decade. Adoption by both households and firms has risen rapidly around the world given the promise for financial innovation, inclusion and efficiency. Unlike traditional financial markets, crypto markets are borderless, operate continuously across time zones, are fully digital and are designed to be decentralised. Their footprint has grown, and market structures have evolved rapidly. The launch of exchange-traded products along with the evolving regulatory stance in the US have further fuelled interest, as prices resumed a sharp upward trajectory.

In this context, institutional investors – including some central banks – have begun to explore the potential role of cryptoassets in their portfolios and whether such instruments are suitable for official reserves.

For central banks, the answer today is no. Cryptoassets currently fall short of meeting the basic requirements for reserve assets.

Crypto is still too volatile

Reserve assets are foreign financial assets held by central banks to maintain economic and financial stability in times of adverse external shocks and to support foreign exchange policy. Central banks follow a conservative investment approach, typically holding high-quality, highly liquid fixed-income securities denominated in major reserve currencies, such as the US dollar and the euro. Since reserves are most needed during crises, liquidity and safety are the primary criteria. Return is a secondary consideration.

In our paper, we offer a conceptual framework to evaluate cryptoassets along several dimensions (Figure 1), beginning with liquidity – the ability to convert an asset into cash without significantly affecting its price. While major cryptocurrencies such as bitcoin and ethereum now have substantial trading volumes, they still lag far behind traditional reserve assets in overall market depth. Concerns remain over the potential for price manipulation and limited capacity to absorb large trades without slippage.

Figure 1. Mapping reserve management dimensions to cryptoassets

Source: E. Feyen, D. Klingebiel, M. Ruiz, Can Crypto-Assets Play a Role in Foreign Reserve Portfolios? World Bank, 2024.

Moreover, cryptoasset liquidity is highly sensitive to market sentiment, regulatory news and technological developments, leading to episodes of extreme volatility. Central banks require assets that can be liquidated with limited market impact during periods of stress – an expectation cryptoassets, with their immature market structure, do not yet meet.

Safety, another foundational criterion, refers to the stability and predictability of an asset’s value. Reserve assets must be low-risk and retain value even under stress. Cryptoassets are highly volatile, with prices subject to sharp swings driven by speculation, regulation or macroeconomic events.

While blockchain technology offers some security advantages, the broader ecosystem introduces operational risks – hacking, fraud, exchange failures and key management vulnerabilities. Cryptoassets function like bearer instruments, requiring careful handling of cryptographic private keys to maintain access. These risks, along with the absence of intrinsic value and reliance on speculative demand, raise serious concerns about cryptoassets’ safety.

The currency composition of foreign reserves typically reflects trade and financial flows. Most cross-border transactions remain denominated in fiat currencies, with the dollar playing a dominant role. Cryptoassets are neither currently used for trade invoicing nor settlement. Until they are more widely accepted as mediums of exchange and stores of value, their relevance for reserve management will remain limited.

Return, while secondary, is still relevant. Higher returns can help central banks grow their reserves and generate income. Cryptoassets have posted strong historical returns, sometimes outperforming traditional assets. But these returns come with extreme volatility and risk – features central banks avoid in their reserve strategies.

Clearer regulation needed

Central banks also need legal certainty and a clear regulatory framework to manage their reserves effectively and avoid reputational risk. The current regulatory environment for cryptoassets remains underdeveloped and fragmented. Many jurisdictions are still working to define their legal status and build coherent frameworks. Implementation of international guidance is at an early stage, and cross-border inconsistencies are common.

This lack of consistent regulation introduces legal and operational risks that further weaken the case for cryptoassets as reserve instruments. Regulatory arbitrage, unclear classifications and jurisdictional uncertainty make cryptoassets difficult to integrate into official reserve frameworks.

In short, despite growing investor interest and infrastructure improvements, cryptoassets still face multiple hurdles before they can be considered viable reserve assets. To be deemed investable by central banks, they would require a substantial increase in liquidity, lower trading costs and volatility, more secure custody and safekeeping solutions, broader adoption in trade and payments and harmonised regulation at both domestic and international levels.

While ongoing developments – such as stronger regulation and improved infrastructure – may help address some of these challenges over time, cryptoassets are not there yet. The International Monetary Fund’s 2025 revised Balance of Payments Manual reflects this reality: cryptoassets are not included in the definition of official reserves.

Until significant progress is made across all core reserve asset dimensions, cryptoassets will remain outside the realm of central bank reserve management.

Erik Feyen is Head of Global Macro-Financial Monitoring and Lead Financial Sector Economist at the World Bank, Daniela Klingebiel is Senior Adviser and Investment and Governance Expert, and Marco Ruiz is Manager of Advisory and Partnership at the World Bank.

This article was originally published in OMFIF’s Global Public Investor 2025 report.

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