Ask the Expert: Cryptocurrency
Crypto leader from PwC Hong Kong, Henri Arslanian, wants you to realise how advanced cryptocurrencies are, understand instead of fearing them, why they’re here to stay and the direction in which they’ll go in the next few years. He elaborates below.
Firstly, Henri Arslanian points out that, ‘It is important to understand, there are a number of types of digital assets, but more often than not, people focus on bitcoin. Sure, when you look at crypto assets, bitcoin has around 40 per cent of what we call market dominance. That being said, there are many different types of crypto assets. In fact, there are around 9,000 different types of crypto assets according to CoinMarketCap.’
For example, the crypto leader from PwC Hong Kong adds, ‘There are obviously cryptocurrencies that we all know about, but there are also what will be called “tokens” or “utility tokens”. They have a certain purpose, and in many cases, they allow users or holders to access certain platforms such as ethereum, which is the second biggest cryptocurrency out there.’
Then, Henri continues, ‘We have a central bank digital currencies (CBDC) or digital currencies issued by a central bank. We even have non-fungible token (NFT). They’re all a kind of collectible art and assets that often when we talk about crypto assets, it really covers a whole range of assets. Although, bitcoin is the original, the mother of all and has a lion’s share of the market.’
Where is cryptocurrency headed in the next few years and what is driving it towards that direction?
Over the last few years, we’ve seen cryptocurrencies become more mainstream. To put things into perspective, in 2016, there were only five million people with an account on a crypto exchange. In 2020, before the last bull market, there were over 100 million people with an account on a crypto exchange. Now, I would argue that the number has easily doubled that amount in the last couple of weeks. It’s because of the regain in interest.
Crypto assets becoming more mainstream is driven obviously by retail investors. However, there’s also a lot of institutional investors and one of the big trends that we’ve seen in recent months and years, is the entry of institutional players. Not only the large financial institutions such as Wells Fargo or Morgan Stanley, but also DBS Bank and others that have entered the crypto market in force. Also, a lot of the investors as well, some of the world’s biggest investors such as BlackRock, even hedge funds like Brevan Howard and others are entering the crypto space.
That’s obviously a big deal and contributing to cryptocurrencies becoming mainstream. Another reason for that is, there’s now increasing regulatory clarity. Today, according to research from Cambridge University, only five per cent of regulators don’t have somebody working on crypto internally. There’s increasing levels of regulatory clarity right now in the market. That’s providing comfort as well as demand from clients and it’s also driving a lot of activity. So, cryptocurrencies are here to stay. You may love bitcoin, you may hate bitcoin, the reality is it’s here to stay.
Should cryptocurrency be regulated to keep its value stable and should the regulating of cryptocurrency be done by an individual or regulatory body?
The crypto industry is probably the only industry vertical of financial services that has been lobbying in recent years for more regulatory clarity, for more regulations and the reason, obviously, the crypto community wants some basic reasonable regulations to ensure there’s a level playing field.
Also, regulatory clarity is important because it categorises the entry of not only institutional players but, to a certain extent, retail players as well. It’s because, obviously with regard to clarity comes certain standards and, to a certain extent, customer protection. That’s quite important and this is why the crypto community has been in favour of regulations.
There have been different approaches to regulatory clarity around the world and obviously today the majority of global financial centres either have no regulatory clarity or are about to. That’s the issue that is pretty much being addressed, if it hasn’t yet. One area that needs a bit more work to be done is on the tax side. It’s great that we have regulatory clarity, we also need a tax clarity. This is an area in which increasing work is needed. I’d say, tax authorities are probably one or two years behind.
Henri’s advice on how the layman should view cryptocurrency:
I always believe that cryptocurrencies are here to stay. I think we all have an intellectual duty to understand what cryptocurrencies are. The piece of advice I give to everybody looking to enter the [crypto] space is, first make sure you at least spend some time to understand how it works. You don’t need technical white paper like back in the day, there are a lot of videos on YouTube, for example. Even myself, I have now YouTube videos available in English, also in French, Arabic and even Chinese. They’re available for free. There’s a lot of educational content available for people who want to learn more about crypto.
Often my advice is to invest just an amount in the market that you’re comfortable to lose. Once you realise how easy cryptocurrencies are, it’ll allow you to actually experiment with cryptocurrencies and you’ll be able to use them. Also, you’ll feel like there’s a vested interest and you’ll be following the markets a bit more closely as well.
What would be the benefits of a cryptocurrency for an individual and a population?
The reality is, there are a number of benefits for people to use cryptocurrencies. For example, bitcoin as kind of digital gold as a hedge against inflation and currency devaluation. Another example, is cross-border payments. Today, the average fee of cross-border payments is seven per cent and in many emerging markets, that’s double digit. Frankly, that’s unacceptable in 2021 that these fees are there now. The benefit that we have with cross-border payment is that if we can use crypto, for instance, it would allow us to send money around the world at lower cost, instantaneously and 24-seven.
Will cryptocurrency be a useful financial tool for economic recovery in post-pandemic period?
When it comes to economic recovery, the thing is, there’s a lot of benefits of digital assets you can have when you look at the corporate situation. Let me give a very simple example. During COVID-19 pandemic, it was a very interesting situation because people were afraid to touch banknotes. They were afraid that would transmit the virus and at the same time, we have reduced amount of payments using cash, but there are record levels of cash in the system. The reason being, in times of financial instability, people tend to hoard cash. It was a bizarre situation where less and less people are using cash as payment, while at the same time there are pretty much record levels of cash in the system globally.
On the economic recovery, a good example, is CBDC issued by central banks. Let’s say today, as a stimulus of the economy, I can give everybody USD1,400 like they’re doing in America. However, there’s no way you can force somebody to spend it. With digital currencies, I can say it’s going to expire in two weeks if you don’t use it. Also, it’s actually a way to access people. One of the challenges we saw during the COVID-19 period was that it was difficult to get money to the people, because many don’t have bank accounts. With digital currencies, you can easily send it to people in their digital wallet. Also, through CBDC, it can allow you to have live monitoring of economic activity in the country, where people are spending and other data that can be very useful.
What can we expect from Henri Arslanian during his WIEF thinkTALK session on E-funding Avenues for SMEs: Borderless Financing?
I look forward to sharing a passion, the future of money. To give an example of how, what we see as money has evolved over the last thousands of years. How the moment we’re living right now is a historic moment when it comes to the history of finance and money. We’re very lucky that we have a chance to experience this revolution. The period we’re going through right now is one that our kids, our grandchildren, will read about and say, ‘Wow dad, mom, grandma, you were there when this was happening.’ I think it’s a privilege and I look forward to sharing on why I believe this is the most exciting time for the future of money.