As more financial services firms look for ways to utilise blockchain technology within their infrastructures, Galen Stops examines whether the technology is really as safe as advocates claim, following two high-profile hacks earlier this year.
“Cyber and system security is one of the most important issues facing markets today in terms of integrity and financial stability,” said Commissioner Christopher Giancarlo of the Commodity Futures Trading Commission (CFTC) on September 8, when approving system safeguard requirements for derivatives clearing organisations.
Giancarlo is hardly alone in his concerns.
Galen Stops looks at why demand for cryptoassets has skyrocketed in 2017 and assesses whether they have any future in mainstream financial markets.
The first working implementation of a blockchain that the world had ever seen was in the Bitcoin software released in 2009. Bitcoin the cryptocurrency then rose to prominence in 2013 when, driven in part by a flurry of media attention, its value rose past $1,000 for the first time.
Following that, 2014 represented a long and painful year of price decline for Bitcoin as an asset, but it continued to garner a lot of attention, not always for good reasons. Then in 2015 the narrative began to change as people really started talking about the potential applications of blockchain technology distinct from any digital assets.
It seemed, not for the first time, like the cryptocurrency bubble had burst yesterday, when the price of Bitcoin tumbled 22% and Ether – Ethereum's native cryptocurrency – similarly dropped 23%.
As Profit & Loss previously reported, these cryptocurrencies – the largest two available by market capitalisation – have been trending up rapidly in 2017, reaching record highs at the start of June.
Yet Bitcoin went from a valuation high of $2,823 on Wednesday to a low of $2,189 on Thursday, according to data from Coindesk. Likewise, the data showed that the price of Ether dropped from $395 to $303 over the same period of time.
Profit & Loss talks to John Deters, chief strategy officer and head of multi-asset solutions at CBOE, about the potential for cryptocurrencies such as bitcoin to trade on regulated exchange platforms.
Profit & Loss: You recently announced a deal with Gemini to use its bitcoin market data to develop your own bitcoin derivatives and indices. What was the thinking behind this deal?
John Deters: We’ve been observing the evolution of the cryptocurrency space, and of bitcoin specifically, for some time. In parallel with that, we’ve been thinking about what sort of structures might work well for these products.
Digital currency exchange, Coinbase, has raised $100 million in Series D funding.
The round was led by IVP, with participation from Spark Capital, Greylock Partners, Battery Ventures, Section 32 and Draper Associates. Founded in 1980, IVP has invested in more than 300 companies, 106 of which have gone public. Notable IVP investments include companies such as Dropbox, Netflix, Twitter, Slack and Snap.
“Coinbase experienced unprecedented growth over the last year, and we have now exchanged over $25 billion of digital currency for our customers. We’ll be using this new funding to continue scaling even further,” says Brian Armstrong, co-founder and CEO of Coinbase, in a blog announcing the news.
As P&L’s resident cryptocurrency enthusiast I'm excited by some of the developments that have occurred in this space over the past few months, because it could signal the start of these digital assets moving towards the financial mainstream.
To help explain why I think this is such an interesting time in the cryptocurrency space, I explain how I first became interested in them after joining Profit & Loss, that I refused to buy bitcoin when it was at $1,000 because "it will never go higher than this" (it's now at $4,300) and why recent regulatory developments could have significant implications for financial services firms looking at trading cryptocurrencies.
At the very start of June, Profit & Loss published an article looking at why demand for cryptocurrencies had spiked in 2017, with the price of bitcoin rising over 200% between January and the latter end of May.
Subsequent to that, demand continued to grow, with the price of bitcoin reaching $4,950 by the start of September. Meanwhile ether – the native cryptocurrency of the Ethereum network – went from $8.29 at the start of the year to $388 by September.