The Future of Money: The Developments You Need to Know this Week (Issue 8 - 13 June 2020)

Dear friends - welcome back to my weekly newsletter where I share some of the major developments on the future of money that you need to know about!

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1. Bitcoin at 20,000 Dollars?

Following record amounts of quantitative easing from central banks, increased retail adoption and further entry from institutional investors, many have been trying to predict the impact on the price of Bitcoin. 

The latest was a research piece from Bloomberg titled “Something Needs to Go Really Wrong for Bitcoin to Not Appreciate” where Bloomberg analysts forecast that Bitcoin may hit 20,000 dollars this year.

According to Bloomberg, the “unprecedented year of central-bank easing is accelerating the maturation of the first-born crypto toward a digital version of gold”.

And the analysts believe that Bitcoin will continue to advance for reasons similar to gold fueled by unprecedented global central-bank easing and the tumultuous conditions created by COVID-19.  

Are gold and Bitcoin the new power couple?

Source: Bloomberg

2. Institutional Players Interested in the Future of Money?

Goldman Sachs mentioned last month that crypto assets like Bitcoin don’t count as an asset class... 

This may come as a surprise following a recent comprehensive survey of almost 800 institutional investors by Fidelity Digital Assets across the U.S. and Europe that found that 36% of respondents (27% in the U.S. and 45% in Europe) are currently invested in digital assets. 

The survey further revealed higher penetration with crypto hedge funds and venture capital funds but also financial advisors, high net worth individuals and family offices.

The percentage of U.S. institutional investors who have allocated to digital assets increased to 27% from 22% in 2019. 

Perhaps not surprisingly, Bitcoin continues to be the digital asset of choice.

Interestingly, 78% of institutional investors find specific characteristics of digital assets appealing.

Whilst the majority of institutional investors (6 in 10) feel digital assets have a place in their portfolio, there is still uncertainty as to which investment bucket they should belong to.

Whilst 40% believe digital assets belong in the alternative asset class, another 20% believe they should belong in an independent asset class. 

Many in the industry would expect these numbers to increase over the coming years as more and more institutional investors enter this space.

Money Quote of the Week

“If you think nobody cares if you’re alive, try missing a couple of car payments.” 

Earl Wilson

3. How to avoid a CBDC bank run according to the Dutch?

Not a week goes by without another development in the field of central bank digital currencies (CBDCs). 

However, one of the biggest fears for any central bank is that in the event of financial instability, the public may convert their deposits in traditional banks into CBDCs and thus accelerate a run on the banks.

This fear was highlighted yet again in a paper from the Federal Reserve Bank of Philadelphia last week. 

The Central Bank of the Netherlands may have a solution laid out in a recent CBDC proposal (that surprisingly didn't get the media attention it deserves) that puts forward an idea worth discussing.

First, they propose to initially launch their CBDC to only natural and legal entities within the Eurozone, and for natural persons who have the nationality of one of the countries within the Euro area, even if they live abroad.

The Dutch central bank believes that such a limit is relevant given the ease with which private forms of money and other assets could be converted into CBDC.

Second, the Dutch propose to lower the interest rate for CBDC holdings over a certain base amount. 

This is because if the interest rate on CBDC is higher than the interest rate on commercial bank money, then most people would prefer to hold CBDC over commercial bank money. But if the interest rate was significantly lower, there would probably be little demand for CBDC.

Consequently, the Dutch propose that any interest rate over a certain base amount could be considerably lower to discourage any use over and above the base amount.

Third, the Dutch propose to have that base amount (where the interest rate would be similar to that of commercial bank money) between EUR 1,000 and EUR 7,000 per capita with the mid-section ranging between EUR 3,000 and EUR 4,000. 

The rationale being that a sum of EUR 3,000 to EUR 4,000 should suffice as monthly living expenses for the majority of Dutch people while retaining a buffer for unforeseen expenses. 

In the unlikely scenario that all citizens retain a maximum balance, it would result in a central bank footprint comparable to that of cash in 2019. Thus the impact would be manageable.

Finally, the available scope for CBDC issuance in each euro area country could be made contingent on the decrease of cash use. 

For example, in the hypothetical situation that cash were to disappear entirely from the Netherlands the amount of CBDC could increase to 15-16% of GDP. 

That would mean that the reduction of the amount of cash in circulation would have been fully compensated by the issuance of CBDC with an upper limit of just over EUR 7,000 per capita for the 340 million residents of the euro area.

Whilst this proposal is not perfect, it brings forward certain ideas that are worth discussing in the context of the Future of Money!

Tweet of the Week

Someone needs to explain to this thief that a digital currency is digital…

My FinTech Capsule Video this week

My interview with Transferwise CEO Kristo Kaarmann on the real cost of cross border money transfers. (Filmed in Hong Kong pre-Coronavirus)

Fun Interview of the Week

Was fun being interviewed in this fireside chat by Medici’s Aditya Khurjekar on my views on the future of money, FinTech in Asia, the importance of intrapreneurs within large organisations and why we all need to have an immigrant mindset. 

My Media Mentions Last Week

Forbes - Sharing my views on the U.S. Digital Dollar

CryptoFund.news - Sharing my views on the latest global trends with crypto hedge funds

My Upcoming (Virtual!) Speaking Engagements

18 June - Digital Assets Perspective - will share latest trends from Asia

7 July - Start-up Impact Summit - will share latest global crypto trends

15 July - ABS Summit - will share latest global trends with crypto exchanges

Enjoyed this content? Make sure to subscribe or share it with a friend! A new Future of Money newsletter will be in your inbox each Saturday!

See you all next week!! 

Henri Arslanian

*Please note that this newsletter reflects Henri’s personal views and not those of any organisation he is involved with.

Who is Henri?

Passionate and focused on the future of finance and money, Henri Arslanian is the PwC Global Crypto Leader and Asia FinTech Leader, the Chairman of the FinTech Association of Hong Kong and an Adjunct Associate Professor at the University of Hong Kong, where he teaches the first FinTech university course in Asia.

With over 500,000 LinkedIn followers, Henri is a TEDx and global keynote speaker, a best-selling published author and is regularly featured in global media, including Bloomberg, CNBC, CNN, the Wall Street Journal and the Financial Times.

Henri was named by LinkedIn as one of the global Top Voices in Economy & Finance and is the host of the FinTechCapsules? and CryptoCapsules? social media series.

Chambers Global recently named him the “highest-profile FinTech consultant in Hong Kong” and Asian Private Banker awarded him the “FinTech Changemaker of the Year” award.

Henri’s latest book, The Future of Finance: The Impact of FinTech, AI and Crypto on Financial Services, published by Palgrave Macmillan, was ranked as one of Amazon’s global top 10 best-sellers in financial services and was recognized as one of the “Best FinTech Books of All Time” by Bookauthority.

You can learn more about Henri on his website (www.henriarslanian.com) and you can reach him at [email protected]