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SIMON BROWN: I’m chatting with Seamus Rocca. He’s CEO of Xapo Private Bank. Seamus, I appreciate the time. At this point – although the price of most notably Bitcoin has been rising, and the other cryptos with it, crypto in of itself has had a bit of a turmoil in the last six months.
A recent note put out by you and your colleagues says that actually underlying blockchain technology could play a vital role in these sorts of things. I’m thinking FTX, I’m thinking Silicon Valley Bank. If they were all exclusively on blockchain, maybe we wouldn’t be where we are today with those two.
SEAMUS ROCCA: I think there’s a lot to unpack there. If you think about blockchain and so on, … I think, for example, stablecoins have a particular use case in making cross-border payments much easier to do than they are today – 24 hours, cheaper, what have you, with [fewer] correspondent banks in the middle. I think with Bitcoin itself its use case is a store of value. Maybe five years ago it was questioned. Today it’s pretty clear. That is far ahead of all our other cryptos in terms of thinking of it as a store of value for many reasons.
So I think there are some very clear use cases of blockchain. We are seeing a lot of central banks thinking about issuing digital currency on blockchain to replace old archaic systems. So I think the use cases of blockchain and some elements of crypto are now pretty much unquestionable. I think the likes of Silicon Valley Bank and some of the other banks were some of the downfall or pressures that we’ve seen in some US banks. That’s more to do with balance-sheet management than it had to do with crypto. I think it’s well known that they had ample liquidity, that perhaps they mismanaged some of the treasuries and assets on their balance sheet by going too long … and suffering huge losses when interest rates started to go up.
So I think that has more to do with poor balance-sheet management than it has to do with crypto. And then of course [there’s] FTX. I think with any industry there are always going to be bad players or players that frankly maybe aren’t doing things the way they should be done.
It’s very easy to point a finger at the crypto space and [say] everybody in crypto is the same. That’s just not true. It would be the same as saying, look, in 2007 Bear Stearns and Lehman collapsed. Yet nobody points to all the banks today, including … and other banks that had to be bailed out, and says all the banks are bad players. Mistakes were made, for sure.
But I think with FTX in particular it’s when things go negative on crypto people tend to conflate a lot of the issues and combine them. Well, I think it’s important that we separate them, [and] be very clear as to what led to each one of those things.
SIMON BROWN: That’s a fair point. Absolutely, there are individuals involved, as distinct from the technology and their technology with Bitcoin. There was a great phrase used in the note, ‘triple entry bookkeeping’ – which is decentralised, transparent, and incorruptible, and which has become so important. The other thing is banks traditionally have been, truthfully, fairly secretive. Banks have been sort of built on trust and secrecy in equal parts. Blockchain is almost the exact opposite of that in a sense.
SEAMUS ROCCA: Well, absolutely. To some degree the very essence of blockchain and Bitcoin is the idea of people …. But more importantly, it’s just at the end of the day a database; it’s a ledger that ensures that you don’t need to sort of trust multiple parties in between. The database is open, it’s transparent. Anyone can go and look at any transaction, and [it] will live in that ledger forever. You can’t sort of five years later decide that, hey, that transaction that happened two years ago, we don’t like it any more, let’s try to delete it or write it off, or whatever. You can’t do that.
You also can’t decide that you can just print more Bitcoin because you’ve got political pressures in your economy, which we see a lot of governments do today.
So I think that Bitcoin is sovereign, as in no government or central bank can print more or corrupt it. The fact that the blockchain itself is clear evidence of any transaction is what makes it interesting. And so I think it’s one of those things where, even though it’s had a children’s start, the element of trust that blockchain creates, one has to look at the future and think that it has to be the foundation on which future financial models are built.
SIMON BROWN: You mentioned earlier the CBDC, Central Bank Digital Currencies, is also stablecoins. The stablecoins by and large actually held pegs very well during the recent upheavals. There was a bit of a wobble, but that was fairly short-lived. Where are we with CBDC? I know China was fairly far advanced in terms of trying it out in the public world and the like, but my sense is the other central banks, I suppose, may be taking a fairly slow approach.
SEAMUS ROCCA: It’s super interesting because, on the one hand, China as we all know is a bit of a closed economy. The government of China will decide how much liquidity it is going to provide to the banks, because they want to control how much lending they can do, and therefore control the pace at which the economy grows. For the rest of the world that’s not quite true. The central banks have to work with the big banks in terms of making sure that there’s enough liquidity and credit being provided to the economy.
All the banks have been massively anti-crypto. Well, there are some valid reasons for it, but one of them is that they’re worried that all this new technology is going to prove to be competition for them, it’s going to challenge, take away some of their pie. So they’ve been deliberately anti-crypto for those reasons.
So when the central bank comes along and says, well, now if we issue digital tokens, you guys need to be comfortable accepting those and distributing them into the economy. To some degree that exposes them to crypto, and they’re being very slow on the uptake because they would then have to recognise that actually there are some benefits to crypto, which they’ve been saying all along was not true. So I think there’s going to be a massive amount of work that the banks are going to have to do to get comfortable with their risk departments, their technology departments, their risk departments.
And the big banks tend to be very slow. They’re not exactly innovators. So when a central bank comes along and says we want to do this on blockchain, frankly, it’s going to take the big banks a long time to be able to get comfortable with the technology and how to operate it.
That’s where I sense we are today. I think the central banks are seeing clear benefits. I think the banks have vested interests that that they want to make sure they control.
SIMON BROWN: Yes, we will get there, but it’s going to be a long, slow journey, as you point out. We’ll leave it there, Seamus Rocca, CEO of Xapo Private Bank, I appreciate the time today.
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