The European Securities and Markets Authority is seeking input to better understand investment products that utilize cryptocurrencies (e.g., virtual currencies) such as Bitcoin, as well the use of a distributed ledger (e.g., blockchain technology) in connection with cryptocurrency investments. ESMA says it is conducting the study to “understand developments in the market, potential benefits or risk for investors, market integrity or financial stability, and to support the functioning of the [European Union] single market.” Among the products ESMA already has identified incorporating cryptocurrencies are collective investment vehicles and exchange platforms. The Authority is endeavoring to learn about different products and the profile of investors investing in them. ESMA is also seeking to learn more about distributed ledger technology, whether such technology is structured differently in connection with different cryptocurrencies, and whether the technology can be used in connection with traditional securities separate from its use with cryptocurrencies. Responses are due by July 21, 2015. (Click here for additional information in the article, “ESMA Issues Call for Evidence on Virtual Currency” in the April 24, 2015 edition of Corporate & Financial Weekly Digest by Katten Muchin Rosenman LLP.)
My View: Although many are skeptical of cryptocurrencies, Bitcoin and other virtual currencies are receiving more and more attention by investors—both as investments in themselves as well as a commodity around which a nascent support industry is developing. Currently, for example, the Commodity Futures Trading Commission is considering the designation of LedgerX both as a swap execution facility and a derivatives clearing organization in connection with options on Bitcoin. (Click here for details in the article, “LedgerX Seeks CFTC Designation as a Clearinghouse and Swap Execution Facility for Bitcoin Options” in the December 21, 2014 edition of Bridging the Week.) Bitcoins (like other cryptocurrencies) represent either a currency or a medium of money transfer (sometimes referred to as small “b” Bitcoin) and are facilitated by the creation of a public ledger (blockchain) of all transactions for all time on the Bitcoin network (the technology behind the distribution and publication of Bitcoin is sometimes referred to as big “B” Bitcoin). At some point, it appears likely that the technology behind Bitcoin can be utilized to help marry lending with unprecedented securitization (e.g., an individual whom is lent Bitcoin to purchase a car may not be able to start his/her car if he/she misses too many repayments). ESMA’s approach of seeking more information before proposing any regulation is commended.