Betting on the Bitcoin Boom

034 - Bitcoins

 

Whether it’s Bitcoin, or the blockchain technology behind Bitcoin, the cryptocurrency gold rush cannot go unnoticed. From traditional finance, Venture Capitalists, traders to governments around the globe are all stepping up their activity keen to get a piece of the action on the promise of the digital currency.

To keep track of all the recent announcements Q INSIGHTS has gathered key global trends to take note:

Bitcoin Funding Ecosystem 2015

 

Wall Street interests and investor heavyweights are making bold moves when it comes to the cryptocurrency. Last week Bitcoin wallet and storage vault outfit Xapo announced the appointments of three key members to its new advisory board, Visa founder, Dee Hock, ex-Citi CEO John Reed, along with former U.S. Treasury Secretary Larry Summers. Similarly, other high profile names were added to the Board of exchange itBit: former US senator Bill Bradley, ex-FDIC chairman Sheila Bair, and former Financial Accounting Standards Board chair Robert Herz.

This same month, New York Stock Exchange debuted the Bitcoin index (NYXBT). The NYXBT tracks the Bitcoin values on select bitcoin exchanges as individuals and companies actively track this data point. Notably, NYSE also has a minority interest in Coinbase Exchange. Other exchanges like Bitcoin Tracker One (BITCOIN XBT) of Nasdaq Stockholm are also monitoring this emerging asset class.

The growing relationship between Wall Street and Bitcoin is emblematic in the investments pouring into the cryptocurrency on pace to reach a billion dollars in 2015. Bitcoin startups are attracting record breaking funding from $50 million strategic investment in Circle, a consumer finance provider that allows users to make payments using digital currencies, by Goldman Sachs and IDG Capital Partners to a staggering $75 investment in bitcoin exchange Coinbase from prominent firms including the New York Stock Exchange, USAA and BBVA. Unusual suspects are also entering the bitcoin investment fray from U.S. retail giant, Overstock to Japan’s largest mobile operator, NTT DoCoMo.

 

In parallel, traditional financial institutions are exploring the role of blockchain technology in transforming the way banks operate. Recently BNY Mellon announced that it is experimenting with Bitcoin to build an application on its internal network. Other banks are pouring funds into accelerator programs and innovation labs to look into Bitcoin and the wider underpinning technology. These include Barclays, Banco Santander, BNP Paribas, Citi, Credit Suisse, HSBC, ING, Fidor Bank, and UBS to name a few. Murmurs of a first ever Bitcoin bank in Switzerland could shake things up in the incumbent banking space as well.

It’s not just banks, central authorities are also looking into the concept of a decentralized ledger for its considerable promise, from the Reserve Bank of Australia, the Federal Reserve Bank, to the Bank of England.

Beyond financial services, tech giants Intel and IBM have also been tinkering around the potential of cryptocurrencies. IBM has even held informal discussions with a number of central banks about the creation of a blockchain-based digital cash and payment system for major currencies.

 

While Bitcoin is turning the banking industry inside out, regulators in the U.S. and worldwide are scrutinizing the implications. Given that the distributed ledger technology is an open source and still in the early days of its development, governments are not quite sure how to respond. Nations like Argentina, Bolivia, China, Iceland, Russia, and Thailand have issued warnings against its use. Other countries like the UK, Canada, Switzerland, and U.S. state agencies are establishing money laundering rules for digital currencies.

Indeed, prominent firms like Coinbase and Ripple have run into trouble over regulatory status. While the enforcement action by Fincen against Ripple was a first, given its solid position in the market, it doesn’t appear to have had any permanent reputational damage. But it does sent a message to other digital currency startups that they must be hyper-vigilant about Anti-Money Laundering (AML) compliance. Players worry about regulators potentially overstepping.

 

Meanwhile, Bitcoin is fostering strategic partnerships between traditional and new players. One of the largest commerce companies, Rakuten plans to enable customers to choose bitcoin as a payment option by integrating Bitnet‘s payment processing platform on a number of its marketplaces. Bitnet also teamed up with UATP, the global travel payment network to offer its 260+ airlines the ability to accept bitcoin payments. It’s worth noting that the team behind Bitnet formerly worked at CyberSource and Visa Inc. Likewise, another payments titan, Heartland Payment Systems is collaborating with BitPay helping to bring bitcoin payment technology to businesses and organizations that are interested in new payment methods.

Another distributed ledger based technology startup, Ripple has made significant moves establishing partnerships with the likes of Western Union, Germany’s Fidor Bank, two U.S. banks, CBW Bank and Cross River Bank, and more recently the Commonwealth Bank of Australia (CBA). But these are only the ones that have been publicly disclosed.

The growing footprint and flurry with Bitcoin is one to take note. Will all this activity eventually mean a boom or bust for Bitcoin? We will see. Stay tuned for more on this topic.

[For a primer on Bitcoin, you can read my past article on the digital currency here, The Reality or Not of Bitcoin.]

 

 

 

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