2018 will be the year that central banks, according to Eugene Estebeth, who previously held a high-level position within the South African Reserve Bank.
G7 banks, banks of the Group of Seven (Canada, France, Italy, Japan, The United Kingdom, and the United States, responsible for more than 62 percent of global net wealth) are currently only handling regulating cryptocurrency, and not identifying its potential as a potential asset.
This can be seen with the USA beginning to support bitcoin on CME and CBOE, but allowing these future and options to expire only in USD, the SEC shutting down Munchee and cracking down on ICO’s, or Japan recognizing bitcoin as a legal tender.
With returns the least importance for the traders in G7 banks, it becomes very apparent why the potential that cryptocurrency can have in an investors portfolio is the last thing on their mind.
“Central bank traders follow the investment policy enforced by the executive committees with specific asset allocation targets. In order of importance, the objective for foreign reserves trading generally is liquidity, security and returns (in last place).”
Estebeth explains in his article that 2018 will be the year that this all changes, as bitcoin exceeds the value all SDR’s created and allocated to members, which is around $291 billion.
The SDR (Special Drawing Rights) is an international reserve asset, consisting of the value of dive currencies; United States Dollar, Euro, Chinese renminbi (RMB), Japanese yen, and British pound sterling.
Bitcoin broke past this milestone on its way up to $19,000, with the cryptocurrency’s current market capitalization at around $285 million due to the bitcoin’s correction over the last couple of days. It’s logical to assume as the digital asset consolidates and gets ready to trend upwards once again, that bitcoin’s market cap will quickly rise past the $291 billion market and stay above there.
As bitcoin exceeds SDR’s value, and G7 currencies quickly devalue against cryptocurrency, both the SDR and G7 banks will have to reevaluate their holdings in foreign reserves, which will eventually have cryptocurrency if they want to maintain value.
“As the realization of the systemic weakness of fiat currencies becomes apparent contrasted with the groundswell of cryptocurrency, the executive committee of central banks, including governors, presidents and chairpersons – will call emergency meetings to exercise their prerogative to deviate from the current investment policy for reserves management.”
The G7 banks will not, of course, touch crypto themselves, Estebeth expects them to use third parties such as external fund managers to invest in crypto, and bitcoin as well as other select cryptocurrencies to be added to a list of eligible securities and currencies.
Lastly, Estebeth expects these movements to be in secret, with information to be sparse as central banks realize they cannot ignore cryptocurrency forever.