1. A new banking model will emerge, in accordance with our better human values.
Fractional reserve banking sucks. Putting the fractional reserve banking model onto the blockchain does not make it suck less. Whether it is traditional banking, challenger banks, neo banks, fintechs, crypto banks: if it uses fractional reserve banking, it is dishonest and dangerous to the economy. Fractional reserve banking is antithetical to the crypto system and the movement of people who support it. A new banking model will emerge, for the crypto era.
2. Fractional reserve banking will be reformed.
The government charter to commercial banks that allows them to create credit money will become regulated. Internal credit money creation will be subject to regulatory limits. The free government deposit guarantee to commercial banks, which encourages speculation on future asset prices and is the cause of economic booms and busts, will be reformed.
3. But it won’t matter: the fractional reserve banking system will almost completely die out over the next decade.
The crypto system will offer higher returns for less risk and depositors will increasingly vote with their feet. Over the next decade, the crypto system will expand and the fractional reserve banking system will decline. An inflection point will be reached where the rate of change for both accelerates rapidly. The fractional reserve system is intrinsically structured like an inverted house of cards. Once enough deposits are pulled out of the bottom, the house will collapse.
4. International trade will increasingly be priced in a standard of value that is global and not tied to the currency of any particular country.
The US dollar will slowly decline as a standard of value in trade. It will be replaced by the Special Drawing Rights basket (USD, EUR, GBP, JPY, CNY) + BTC.
5. Bitcoin, once linked to productive use in the real economy, will emerge as the ultimate global store of value, mainly because its supply is fixed and because of wide adoption.
Bitcoin will increase significantly in price as adoption spreads. The price a decade from now will be in excess of $410,250 per BTC.
6. With greater adoption of the crypto system, excess economic variance in the economy will become like some diseases that human ingenuity has confronted: a distant memory.
The crypto system will reduce business cycle variance in two ways:
a. Through the elimination of credit money creation by commercial banks. Crypto money supply is fixed; it cannot be arbitrarily created.
b. By endowing money ownership rights in its proper holders: those who created the value in the first place. This will tap into distributed knowledge in society and will naturally introduce greater prudence in use of funds, particularly lending in the hope of future asset price appreciation.
7. Crypto currencies will be valued more like currencies in the future, rather than like assets, as the sector achieves greater financial depth.
There are two main problems with crypto currencies at the moment: there is little market depth and there is not much of a link to the real economy. In the future, as greater links are established to the real economy, leading to greater market depth, crypto currencies will be priced more like currencies and less like assets.
8. Most utility tokens will convert into equity tokens or companies will set the price for their product in relation to a stable standard of value, rather than in the token price.
The utility token value is often treated as a representation of the value of the issuing company. Many companies have encouraged this impression, which is economically to the long-term detriment of product adoption. There are two simple solutions: issue securities tokens and/or pricing usage based on a stable standard of value.
9. Stablecoins will be a very niche part of the crypto space, without much value.
Most stablecoins seek to provide price stability for crypto users, in relation to old standards of value, like the US dollar. While there are some use cases for such tokens, most participants will seek to achieve price stability through more efficient or financially rewarding means. Sellers and buyers of many internationally traded goods, for example, can achieve future price certainty by reference to a stable standard of value and/or using crypto derivatives markets, which will grow in importance in the future.
10. The future “unwinding” of fiat money created over the past decade will lead to an accelerated decline of nation state currencies over the next decade and drive savers to adopt crypto currencies.
The unbounded and continuing money creation of the past decade, to bail-out the fractional reserve banking system from asset mal investment, is historically unprecedented. Foresighted savers, particularly asset managers in advanced economies, will seek value preservation in the emerging crypto system at a level greatly in excess of today’s levels.
11. Enterprise “blockchains” will cease to exist.
Their very name is an oxymoron. Enterprises only adopt blockchain as a defensive measure, but they won’t be able to hold off the value that arises within global ecosystems from truly decentralised blockchains. The benefit of blockchains is to cut out the middleman. Enterprises are the middleman. As soon as a real crypto bank is in place, to link the crypto system to the real economy, industry ecosystem blockchains will arise to disintermediate these middlemen.
12. Centralised trading exchanges will cease to exist.
These exchanges are nothing more than SQL databases and have nothing to do with crypto except the assets that trade on them. Decentralised exchanges will arise.
13. Money transfer companies like Western Union will go bankrupt and cease to exist.
Western Union transfers money mainly amongst the poorest people in the world. They do this for up to 30% of the amount transferred. The crypto system will soon be able to do this for fixed fees of less than a dollar per transfer. Over the next decade, those institutions that have ethical investing guidelines will disinvest from Western Union, based how it preys on the poor.
14. Low income people everywhere will do their banking using the crypto system.
The fractional reserve banking system has completely failed low income people. Of course, most poor people are not even accepted by these banks. The crypto system has significantly lower fixed costs than the traditional banking system and, consequently, allows everyone to benefit from financial inclusion. The poor will be able to make transfers at extremely low cost. Emerging crypto banks will allow them the benefits of the savings function, giving them the first opportunity ever to climb out of poverty. The effects for poor communities globally will be transformational.
Bank of America will charge low-income customers $12 per month for their checking accounts unless they have a $1,500 account balance.
Finally, a bank with some fresh ideas on how to make poor people poorer.
15. Micro-everything will explode in use.
The crypto system allows extremely small amounts to be used in the financial system. For example, transfers for only a few dollars can be made. Emerging crypto banks will allow savers to put very small amounts of value to work, on which people can earn interest. The poor will be able to hold just a few satoshis worth of global stocks. Even the yield curve will be able to be constructed on a micro-level, for example the lending function could happen based on a day basis, rather than on wide fixed dates with interpolation between such dates for pricing at the moment. It will revolutionise finance.
These are problems for which the only technology solution is the crypto system, which is like digital technology. As in so many improvements, the traditional banking system simply cannot offer such solutions; they are intrinsically stuck in an analogue technology world. The crypto system is your smart phone; fractional reserve banking is like using a Blackberry.
16. Constraints due to “repugnance” (for legal activities) will cease to exist.
Economists use the term “repugnance” to describe activities that have a moral element to them. Many banks and financial intermediaries do not allow their customers to make purchases they deem repugnant, even if they are legal. In the future, people will decide what is morally repugnant to them and what is not. The crypto system allows users to decide how they spend their money, not middlemen.
17. The various financial companies in the credit card processing chain will go bankrupt and cease to exist a decade from now.
The existing cards - banking system is based on pull technology, which is complex, costly and prone to fraud. The crypto payment system, based on push technology, is simpler and more secure than pull and will replace the old system. A decade from now no one will use the pull-based system; it will completely disappear. The main impetus for switching from credit cards to crypto system payments will come from merchants.
18. Criminals will continue to use the crypto system.
Sadly, criminality is just a fact of life and most criminals use financial systems, including crypto. The crypto system will put safeguards in place to protect against criminal activity, which is possible in a high-tech environment and less possible with traditional banks.
19. Gold will decline significantly in value, to the price level set by jewellery.
Crypto currencies are superior to gold in all respects and gold’s use as a store of value will be reduced as the crypto system increases in adoption and the fractional reserve banking system and national currency use declines. Eventually, both gold and nation state currencies will be seen as barbarous relics.
20. Until the crypto system matures, it will continue to attract some bad actors.
The exuberance related to the crypto system’s potential for humanity will continue to attract those who do not have the best interests of others at heart, those who seek only personal gain. This cannot be avoided and all new technologies, from railroads to the internet, attract such characters; it seems it is only human. For those who want to make the world a better place, we need to ignore critics’ attacks against the small number of these bad actors, weed out the opportunists, and focus on providing services that improve people’s lives.
Robert Sharratt
Robert is part-Canadian, part-British, somewhat autistic and lives in Geneva. He is going to link the crypto system to the real economy and create a better banking model, or die trying. His interests include mountain-climbing, chess, piano, programming and distrusting authority. In his early career, he was an M&A investment banker in London, then in private equity, and then moved to Switzerland to invest his own money. He holds an MSc degree in Finance from London Business School.
Twitter: @ReassureFin
LinkedIn: https://www.linkedin.com/in/robert-sharratt-1887a4129/