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Crypto Assets Banking Perspective

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Policy dilemmas and commercial implications of sovereign and central bank issued cryptocurrencies

Published in: Economy & Finance
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Crypto Assets Banking Perspective

  1. 1. CRYPTO-ASSETS AND CRYPTO-CURRENCIES A BANKING PERSPECTIVE 1 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA
  2. 2. AGENDA 1 - BANKER’S DEFINITION 2 - SECURITISATION TECHNOLOGY 3 - CENTRAL BANK CRYPTOCURRENCIES 4 - COMMERCIAL BANK RISKS 5 - COMMERCIAL BANK PREPARATION 2 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA
  3. 3. CRYPTO-ASSET A unique record that is tradable for value 3 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA
  4. 4. BLOCKCHAIN RECORD Secured through cryptography Once verified, can no longer be deleted or modified Has no central point of control Is available to all participants in the network Is verified through a consensus mechanism 4 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA
  5. 5. TRADABLE FOR VALUE Available to anyone on the internet Clear, transferrable title of ownership Exchangeable into monetary value Example: Cryptokitties Digital tokens with unique characteristics (game-DNA) trading at up to $150,000 per token. They breed further unique tokens. Unique, liquid and dividend-paying? 5 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA
  6. 6. MASS-MARKET SECURITISATION Anyone from anywhere can issue a digital asset or share an asset with 
 no intermediary In very small or very large quantities And trade the asset with instant settlement 6 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA
  7. 7. SOVEREIGN-ISSUED CRYPTOCURRENCIES Central banks have already tested sovereign- issued cryptocurrencies: Digitally-programmable money supply Direct digital relationship between the user and the central bank Each unit is uniquely identifiable and trackable 7 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA
  8. 8. SOVEREIGN-ISSUED CRYPTOCURRENCIES Digitally-programmable monetary policy could: Restrict cash injection to specific uses, e.g. healthcare or housing Incentivise consumer or infrastructure spending through programmed expiry or accelerated value erosion of money 8 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA
  9. 9. COMMERCIAL BANK 
 RISKS - DISINTERMEDIATION Risk losing deposit-taking role Risk losing fractional reserve credit creation ability Risk severe client loss unless the customer relationship is redefined around fee-based business 9 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA
  10. 10. BANK-DEPOSIT FUNGIBLE SOVEREIGN CRYPTOCURRENCY Central banks know they have neither the mandate nor the expertise to take on the credit role of commercial banks The sudden end of the fractional reserve banking system would destroy the economy Political and social ramifications are unacceptable in most countries… today 10 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA
  11. 11. BANK-DEPOSIT NON-FUNGIBLE SOVEREIGN CRYPTOCURRENCY Commercial banks could be part of the currency issuance and verification protocol Could be subcontracted to commercial banks to issue for domestic consumer use Exactly equivalent to physical notes and coins in circulation Programmable 11 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA
  12. 12. Instability in loan capacity May require greater liquidity, lower leverage Substitution risk May require development of 
 own crypto-term- assets to retain 
 clients within the bank’s network COMMERCIAL BANK 
 RISKS - LIQUIDITY MANAGEMENT Deposits Loans/
 Assets Fiat Only Fiat <-> Crypto Today Tomorrow ? 12 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA
  13. 13. COMMERCIAL BANKS 
 CAN PREPARE Intensified global competition Instant settlement without reliance on correspondents and traditional network Develop KYC as a service Credit-assessment as a service Crypto-custody as a service Crypto-asset broking and payment solutions 13 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA
  14. 14. 2018 Predictions Regulators will define global minimum standards for regulating crypto-assets as an asset class At least one global top-10 technology company will issue a regulated crypto-asset At least one emerging-market company 
 will bypass their own stock exchange to issue a regulated crypto-asset 14 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA
  15. 15. Thank you 15 2 MAY 2018 COPYRIGHT 2018 WARDROBE PLACE MANAGEMENT LTD HADI KABALAN, CFA

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