The European Securities and Markets Authority published responses to its April 2015 consultation regarding virtual currency investments. (Click here for details regarding this consultation in the article “ESMA Seeks Industry Input on Investments Using Cryptocurrencies and Distributed Ledger Technology” in the April 26, 2015 edition of Bridging the Week.) The consultation attracted responses from a wide range of industry participants and potential participants including issuers, banks, settlement agencies, exchanges and clearing organizations. One respondent, the Euroclear Group, contemplated the potential uses of the distributed ledger (e.g., blockchain) that is used with cryptocurrencies: “simplification of the exchange of data to find counterparties, negotiate trades and settle transactions, reducing time, risk and capital,” as well as “creation of open and robust financial infrastructure for new types of assets and transactions (introducing DVP for more asset classes) enabling new, more open business models,” among other uses. Another respondent, Deutsche Bank AG, said, “we believe that [distributed ledgers and blockchain technology] presents a potential opportunity to realize a number of important benefits including more stable and resilient systems, faster processing of transactions and lower costs for bank customers.” According to CME Group, “[i]n addition to digital currency being a potential new fiat currency, digital currency presents the opportunity for a number of related products such as indices and derivatives, and blockchain as a technology to create a universal ledger.”
Helpful to Getting the Business Done: I am still personally agnostic when it comes to predicting the future success of Bitcoin. However, it is clear to me that more and more institutions are seeing a great potential in the technology behind the distributed ledgers associated with cryptocurrencies to have a material impact on the processing of financial transactions in the future. Others see an equally great potential in the future use of cryptocurrencies themselves. Review of just a few of the letters submitted to ESMA’s consultation will provide insight into what many see as the possible opportunities.