A banks and monetary policy perspective on crypto assets, mass securitisation and crypto currencies

1. 21 February 2018
Hadi Kabalan
Wardrobe Place Capital Management
Cryptocurrencies:
A Banking Perspective
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2. Cryptocurrency
✤ A unique record that is
tradable for value
221 February 2018 Copyright 2018 Wardrobe Place Management Ltd Hadi Kabalan, CFA

3. Blockchain Record
✤ Secured through cryptography
✤ Once verified, can no longer be deleted or
modified
✤ Is available to all participants in the network
✤ Is verified through a consensus mechanism
✤ Has no central point of control
321 February 2018 Copyright 2018 Wardrobe Place Management Ltd Hadi Kabalan, CFA

4. Tradable forValue
✤ Available to anyone
on the internet
✤ Clear, transferrable title
of ownership
✤ Exchangeable into
monetary value
Cryptokitties are digital tokens
with unique DNA, trading at up
to $150,000 per token. They breed
further saleable tokens… Unique,
liquid, and dividend-paying.
421 February 2018 Copyright 2018 Wardrobe Place Management Ltd Hadi Kabalan, CFA

5. Mass-market Securitisation
✤ Anyone from anywhere can
issue a digital asset or share of
an asset with no intermediary
✤ In very small, or very large
quantities
✤ And trade the asset with
instant settlement
521 February 2018 Copyright 2018 Wardrobe Place Management Ltd Hadi Kabalan, CFA

6. Sovereign-Issued Cryptocurrency
✤ Central banks have already tested sovereign
cryptocurrencies:
✤ Digitally programmable money-supply
✤ Direct digital relationship between the user and
the central bank
✤ Each unit is uniquely identifiable and trackable
621 February 2018 Copyright 2018 Wardrobe Place Management Ltd Hadi Kabalan, CFA

7. Sovereign-Issued Cryptocurrency
✤ Directed 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
721 February 2018 Copyright 2018 Wardrobe Place Management Ltd Hadi Kabalan, CFA

8. Commercial Banks Face Risks
✤ Banks could be part of the currency issuance
and verification protocol
✤ Risk losing deposit-taking role
✤ Risk losing fractional credit creation ability
✤ Risk severe client loss if the relationship is not
re-defined around around fee-based business
821 February 2018 Copyright 2018 Wardrobe Place Management Ltd Hadi Kabalan, CFA

9. Deposit- Fungible
Sovereign Cryptocurrency
✤ Central banks know they do not have the
mandate or expertise to take over the credit
role of commercial banks
✤ Sudden end of fractional reserve banking
system would destroy the economy
✤ Political and social ramifications
unacceptable in most countries … today
921 February 2018 Copyright 2018 Wardrobe Place Management Ltd Hadi Kabalan, CFA

10. Deposit- Non-fungible
Sovereign Cryptocurrency
✤ Exactly equivalent to physical notes and
coins in circulation
✤ Programmable
✤ Could be subcontracted to commercial
banks to issue, for domestic consumer use
1021 February 2018 Copyright 2018 Wardrobe Place Management Ltd Hadi Kabalan, CFA

11. Liquidity Risk Management
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Deposits
Loans
Fiat Only Fiat <-> Crypto
✤ Instability in loan
capacity may require
greater liquidity,
lower leverage
✤ Develop ability to
issue own
cryptocurrency term
instruments to retain
customers within
bank network
Today Tomorrow
?
21 February 2018 Copyright 2018 Wardrobe Place Management Ltd Hadi Kabalan, CFA

12. Commercial Banks Can Prepare
✤ Instant settlement without reliance on correspondents
and Swift means global competition
✤ Develop KYC as a Service
✤ Develop crypto-custody as a service
✤ Develop credit assessment as a service to diversify from
balance sheet lending
✤ Develop cryptocurrency broking and merchant
payment solutions to keep users within your network
1221 February 2018 Copyright 2018 Wardrobe Place Management Ltd Hadi Kabalan, CFA

13. 2018 Predictions
✤ Regulators will find global consensus on
regulating crypto-securities as an asset class in
developed markets
✤ At least one top 10 global technology company
will issue a regulated cryptocurrency
✤ At least one company from a currency-controlled
country will issue a global regulated
cryptocurrency
1321 February 2018 Copyright 2018 Wardrobe Place Management Ltd Hadi Kabalan, CFA

14. Thank you
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