Credit Suisse’s private banking clients in Asia have been showing keen interest in cryptocurrencies but not in the way you think.
Cryptocurrencies have become a frequent topic of discussion at client meetings in private banks, with clients baffled by the bizarre returns that are creating ‘millionaires’ overnight.
Speaking at the Investment Outlook 2018 media briefing in Singapore on Monday, Apac CIO John Woods said: ‘Pretty much in every client meeting I’ve had for the last six to nine months, the subject has come up. I want to add it’s not necessarily that clients are investing in it but that there’s a huge amount of interest -- akin to people looking at a slow motion car crash. That’s the level of interest we’ve seen.’
Woods went on to say that the price appreciation of digital currencies is hard to justify, with Bitcoin crossing $14,000 and Ethereum rising by 5,000% within 12 months.
‘The day-to-day usage is particularly small and the ability to liquidate Bitcoin and derive cash is even more challenging,’ he added. The number of daily Bitcoin transactions is close to 400,000 whereas foreign exchange transactions go up to trillions of dollars daily.
‘At the point that we do start to see financial institutions investing in a version of a cryptocurrency, it will survive, because there will be regulation, organisation and management around the idea, which does not exist at the moment,’ said Woods.
Supporters of digital currencies believe that the market is maturing, with the market cap of cryptocurrencies crossing $200 billion in 2017.
There are currently 2.9-5.8 million cryptocurrency wallet users, according to Deutsche Bank, which believes the cryptocurrencies could develop into a new asset class upon regulation and security measures.
Several banks, including Credit Suisse and Deutsche Bank, are paying far closer attention to distributed ledger technology to make transaction settlement and record-keeping for back office functions more efficient.
For example, in October, HSBC, OCBC Bank and Mitsubishi UFJ announced the successful completion of a proof-of-concept for a Know-Your-Customer blockchain to share the burden of background checks into clients.
‘Numerous banks like ours, we are working on simplifying the settlement of transactions and that could lead to significant efficiency gains,’ said Benjamin Cavalli, head of private banking Southeast Asia and Singapore CEO at Credit Suisse.