Will cryptocurrencies emerge from the shadows of regulation?

By Foo Boon Ping

Digital currencies have been hogging media headlines, with some countries jostling to attract start-ups in the cryptocurrency and underlying blockchain technology space. But will this bring cryptocurrencies into the mainstream?

Cryptocurrencies, in particular bitcoin, have been hogging media headlines recently. In the US, thefirst futures contracts for bitcoin started trading on the Chicago Board Options Exchange (CBOE) on1 December 2017, one of two venues that the US Commodity and Futures Trading Commission have approved to do so on 1 December 2017. The other is the venerable Chicago Mercantile Exchange (CME)which started a week later.

No doubt there will be close attention paid to how bitcoin will perform in its first few days of future strading. But on a wider perspective, will this bring cryptocurrencies into the mainstream? Is the CFTC approval a stamp of legitimacy for cryptocurrencies? And will the ability to trade futures on both the long and short sides make it a more a stable financial asset, ameliorate the volatility in its price movements, thereby making it a less uncertain and hence more “acceptable” asset class for the wider investment community to consider.

The start of futures trading is a watershed for bitcoin to move out from theshadows of finance towards the mainstream.The US CFTC is not alone. Japan’s Financial Services Agency (FSA) had also in early December 2017, announced the authorisation of four new virtual currency exchanges to operate in the country. These approved exchanges join an earlier batch of 11 exchanges approved by the Japanese regulator, making the country one of the largest, if the largest, venues for exchanges for cryptocurrencies to operate. Across the straits in South Korea, Seoul is also becoming a hub for cryptocurrency exchanges,where demand amongst local investors isso great that they have to offer higher prices,the so called “kimchi” premium, for locally traded bitcoins and other cryptocurrencies.

There are various other countries that jostling to attract start-ups in the cryptocurrency and underlying blockchain technology space. For instance, the Crypto Valley is an ecosystem established in Zug, Switzerland. Its mission is to establish the world’s largest ecosystem for blockchain andcryptographic technologies.

Cryptocurrencies are digital assets designed to work as a medium of exchange using cryptography to secure the transactions, to control the creation of additional units, and to verify the transfer of assets.

And to many, the value of cryptocurrencies may not lie in their intrinsic value as a medium of exchange but the underlying technology that holds the potential to revolutionalise the very foundation and infrastructure of finance.

Now with these cryptocurrencies being able to be legally traded in different parts of the globe, how will this new global trend, once again, have an effect on the financial industry?

Categories: Financial Technology, Regulation, Retail Banking, Risk and Regulation, Technology & Operations, Transaction Banking
Keywords: US CFTC, CBOE, CME


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