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David Woolcock 12-Apr-2021 11:34:36 6 min read

Cryptocurrencies and Digital Assets: The Coming of Age for Treasury Management Systems

In our whitepaper, What to look for when selecting a treasury management system, we included a section on digital currencies. The whitepaper referenced our blog from just over a year ago (An unanswered question from Davos) that posited the question of when we would activate our Crypto/Digital/CBDC functionality in our treasury, sales and trading systems. At that time, we had undoubtedly seen a series of decisive moves on CBDC’s and stable coins. A year on, we see strong institutional uptake for cryptocurrencies from asset and wealth managers and an emerging interest from corporates. These are the customers of banks, and so it is likely that the coming weeks will feature news of banks looking to offer trading and post-trade capabilities for this emerging asset class.


Backing this up are reports on CNBC that Goldman Sachs will re-enter the crypto trading market. They had first started a trading desk in 2018, but following the decline in the value of cryptocurrencies, institutional demand left the market. The report states, “The trading desk reboot comes amid growing interest by institutions in bitcoin, which has soared more than 470 percent over the past year”. Investors and some companies see the largest cryptocurrency as a hedge against inflation as governments and central banks turn on the stimulus taps. This development is further borne out by recent moves with institutions like Blackrock, who filed with the SEC that their funds “may engage in futures contracts based on Bitcoin futures and Ruffer stating in their annual end of year review - “We think we are relatively early to this, at the foothills of a long trend of institutional adoption and financialisation of bitcoin.”

Returning to this year’s World Economic Forum (WEF, Davos to many) and the publication of an exciting WEF whitepaper, Bridging the governance gap: Interoperability for blockchain and legacy systems. This paper encourages interoperability between blockchain and legacy systems and concludes that employing for existing legacy systems, rather than replacing them, would be the optimal result. Taking this approach seems far more realistic than suggestions that the financial world will scrap their legacy systems and replace them with fourth age technology forthwith! It is an approach that resonates with our fresh consultancy approach, details of which are launching shortly, and looks at how you can plug the gaps in existing legacy platforms.

The interoperability proposed by the WEF dovetails nicely with the remaining issues needing to be resolved for a lot of banks looking to offer cryptocurrency and digital assets trading capabilities. Solving execution exposes the problem of what happens post-trade, and this is where the relevance of combining the two worlds becomes a lot trickier. At Eurobase, we are excited to have started working with Custodiex in looking at how you achieve full STP from execution to cold storage of a cryptocurrency/digital asset. The key to this for the trading environment is that the cold storage facility needs to act like hot storage with fully online capabilities without compromising the security afforded by cold storage. More to follow on this one.

Having just celebrated the Chinese New Year, which is the year of the Ox, I am bullish it’s the year we see cryptocurrencies and digital assets take their place in wholesale markets. The last days of February saw US Federal Reserve chair Jerome Powell declare 2021 to be a pivotal year in consulting the public on the digital dollar. Treasury secretary Janet Yellen also stated “it makes sense” for central banks to consider issuing their digital currencies. What is certain is that China’s digital currency plans are well advanced alongside many others.

A recent Citigroup Global Perspectives & Solutions report sees significant advantages for cryptocurrencies over the current global payment system in their decentralised design. In the report, they state that “we could be at the start of massive transformation of cryptocurrency into the mainstream.” Indeed, many see the wild west reputation of the crypto world is somewhat being put to rest. Regulators are waking up to the changes and looking to catch up with this fast-evolving market. While most regulators are playing catch up, a notable few, like the UK FCA, have got a clear strategy but are some way from being ahead of the curve! The Swiss regulators seem to be ahead of the curve and are worth studying as a likely model that many will follow.

So, as you consider what to look for when selecting a treasury management system, you must look at the crypto and digital asset capabilities. From price sourcing to execution and post-trade requirements, you need to make sure you can stand ready to fulfil customer expectations. Alternatively, if you need to plug a gap in your existing systems, we would be delighted to talk with you as we watch the two worlds collide and the crypto and digital asset world finally become mainstream in 2021.


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David Woolcock

David Woolcock is an independent consultant and Director, Business Consulting at Eurobase. In addition, David is Chair of the Committee for Professionalism at ACI – The Financial Markets Association as well as Vice-Chairing the ACI FX Committee. He is also a member of the Market Practitioners Group for the Bank of International Settlement's FXWG that wrote the FX Global Code.