Christopher Agathangelou, head of digital capital markets and flow credit at NatWest, spoke for many as he kicked off a session on Digital Capital Markets at the recent ACT Annual Conference in Liverpool when he said: “When I first heard about crypto, the word that came to my mind was volatility.”
The full house for the session was perhaps evidence, despite the headwinds that affect the sector, that digital assets – and the markets for them – are finally getting mainstream recognition and understanding.
But there remains work to do to educate the market, where confusion over different assets still exists. As Lee McNabb, NatWest’s payments strategy lead, pointed out, the spectrum of digital currencies encompasses both the volatile (Bitcoin) via the asset-backed (stablecoin) to central bank digital currencies (CBDCs).
And he made the point that globally, with around 90% of banks looking into the possibilities of DCs, banks are seriously waking up to digital currencies.
“That’s intensified in the last two years in large part thanks to Facebook’s Libra consortium focusing the minds of regulators, bankers and lawmakers across the world.”
Indeed, for a bank like NatWest, which handles one in four payments in the UK, the possible impact is potentially enormous.
“Digital assets are already here,” said Nick Pedersen, global head of digital at NatWest. “And treasurers at banks like NatWest are thinking about how exposed they want to be and whether they want to hold digital assets. And all corporates and investors are asking the same thing.”
“We’re sitting on a $2 trillion market already, so asking if it’s relevant is missing the point,” said Pedersen.
Besides the banks, the big question remains as to when and how governments will adopt and development a crypto strategy.
“This has been alive for a while,” said Philip Stewart, NatWest’s director of digital capital markets. He explained that the Digital Europe project was targeting 2025 for a sustained rollout of CBDC. And he admitted that all the signs seem to be pointing to some progress in the UK.
“Whether that’s a fully fledged Bank of England-issued CBDC or something like a commercial equivalent, quasi-CBDC, who knows, but it’ll be here soon.”
And of course, as blockchain – the technology on which all this rests – becomes better understood, investor and regulator sentiment should follow. “With every new technology there is risk,” explained Pedersen.
“But where the industry is going in adopting this tech through pilot use cases is going to be important to make everyone comfortable with dealing in assets that fall into that category. And the next two years will be about the variety of different assets and their use cases that unpick these problems end to end and make the broader industry more comfortable with the fact that the technology is actually really well suited to reducing risk.”
And while recent events in the crypto space – wild swings in Bitcoin’s value, most notably – have brought harsh focus on digital assets, the direction of travel towards the adoption of more stable assets is gathering momentum each year.
“Yes, there’s a real concern there,” said McNab, who countered that the role of banks became even more critical in creating maintaining industry confidence.
“Our fundamental role is to be a trusted to hold, lend and move money. So, all we need to do is to apply the same risk management and appetite, but in a digital world.”
Christian Doherty is a freelance business journalist and regular contributor to The Treasurer magazine