Blockchain technology is set to disrupt existing financial business models within the next five to 10 years, according to a new report by global capital markets consulting firm GreySpark Partners.
Entitled “The Blockchain: Capital Markets Use Cases”, the report[1] notes that distributed ledger technology (abbreviated as DLT) has the potential to reduce operational costs and counterparty and settlement risk, while also impacting payments and remittances, among other financial sectors.
Other topics discussed in the report included digitised financial instruments; regulatory reporting; clearing and settlement; reconciliation and smart contracts.
Overall, the report spoke broadly about the potential for the blockchain to impact these areas, noting:
“Since the blockchain is a proof-of-record of agreed transactions and contracts, the technology can support any sort of transaction of value. This functionality poses a number of pertinent use cases within capital markets. For example, in the near future, blockchain-applied solutions could used to bridge the gap between distributed ledger systems and the world of mainstream financial infrastructure.”
The report goes on to state that despite this potential and cost-saving advantages, distributed ledgers are only used by a “handful” of major financial institutions today.
Adopting the blockchain
While speaking generally about the technology’s potential, the report also speculates as to how it could reach more widespread adoption.
Toward this goal, the authors explain, most blockchain startups are currently focused on the development of ledger-agnostic business models:
“Blockchain-based solutions are fundamentally designed to create new financial markets infrastructures that, in terms of the functionality, would initially replicate existing markets infrastructure and then eventually expand on it by reducing its complexity at the margins to become suited to a distributed or shared ledger network.”
As a result, it adds, there is tension between startups which have pivoted from bitcoin-orientated business models into the financial markets and the existing mainstream industry providers.
“Currently, there is a bifurcated outlook on the future of DLT and its relationship with existing financial markets ways and means of processing data,” it continues.
Although mainstream capital markets participants are eager to adopt such solutions, there is currently “a misalignment of imperatives”, says the report, adding that the technology’s intrinsic problems must be resolved first before widespread adoption is achieved.
“For example, a fundamental problem associated with DLT is the issue of transaction throughput capacity. While some blockchain initiatives developed blockchain appliances that have the ability to process a vast amount of transactions in near real-time, they do so at some degree of cost.”
The report finally argues that blockchain technology will become a “cross-industry solution” if and when it meets all of the capital markets industry’s requirements.
The price of bitcoin on the CoinDesk USD Bitcoin Price Index fell more than 13% today to reach a seven-day low of $329.12.
At press time, bitcoin was trading at an average of $332.89 across major USD bitcoin exchanges, a 13.16% decline from the day’s opening of $380.04.
The day’s most rapid decline began at 20:15 UTC before falling abruptly one hour later.
Similar price movements were observed on the CoinDesk CNY Bitcoin Price Index, which at press time, indicated prices had fallen more than 12% across major China-based exchanges including BTCC, Huobi and OKCoin.
Data suggests both USD and CNY markets are now moving in tandem, as prices saw the most notable downward movement at 21:25 UTC. The value of bitcoin was still higher on CNY exchanges, where one bitcoin was trading for around $344 at press time.
The declines follow a US government auction of roughly 44,000 BTC last Thursday and come amid increasing reports that last week’s price increases were driven by MMM Global, a pyramid scheme that has captured the attention of The Financial Times[1] and its coverage of market movements.
According to the FT, MMM ringleader Sergey Mavrodi has claimed credit for the price increase due to the use of bitcoin in transactions for MMM-China, where bitcoin is the only payment method offered to users.
The connection has been further established by public statements from executives of major China-based bitcoin trading firms, though blockchain evidence of this impact has yet to conclusively validate the claims.
CoinDesk has reached out to blockchain analysis firms for more information on last week’s price movements, though no further details had been provided as of press time.
At publication, the price was also down roughly $30 year-over-year, as bitcoin opened at $366.99 on 11th November, 2014.
Coinbase is seeking to expand its bitcoin buying and selling services to new Asian and Latin American markets in 2016.
In interview at Money20/20[1], product manager Adam White indicated that the startup, which has so far raised more than $106m[2] in venture funding, aims to be operational in 40 countries next year, and that these regions would be primary areas of focus.
In September, Coinbase[3] announced its first launch in Asia with an expansion to Singapore[4], though it has yet to make its services available in Latin America.
White said new announcements could come as soon as December or January, and that news was dependant on Coinbase’s ability to meet local regulatory compliance.
He told CoinDesk:
“We continue to look at Coinbase as a infrastructure, providing programmatic access to buying and selling.”
Elsewhere, White suggested that Coinbase is not looking to launch a private blockchain product for enterprise businesses, as its US competitor itBit did in August[5].
White said Coinbase was likely to continue to emphasize strategic partnerships with consumer-facing payments companies, as well as firms that have made public investments in the startup.
Coinbase investors include BBVA Ventures, the New York Stock Exchange (NYSE) and USAA, the latter of which recently launched a pilot program[6] that made select Coinbase services available to customers.
The expansion estimate is the latest for the San Francisco company, which had made international expansion a cornerstone of its goals for 2015.
At the time of Coinbase’s $75m Series C round[7], announced in January, CEO Brian Armstrong forecasted that the company could be available in as many as 30 countries by the year’s end.
Bitcoin payroll service Bitwage is joining six other startups as part of an incubator backed by French telecom giant Orange SA.
The startups represent the fifth class of startups included in the Orange Fab incubator, which began operations in 2013. Companies that take part in Orange’s incubator, according to the firm’s 5th November announcement[1], will work with mentors, receive hands-on training and conduct business out of a San Francisco workspace owned by Orange Silicon Valley (OSV), the telecom’s US-based outfit.
Bitwage[4] founder and president Jonathan Chester told CoinDesk that his team has been working out of the San Francisco space since September. He traced Bitwage’s involvement with Orange back to a local gathering in June[5], when he appeared on a panel hosted by OSV.
This connection led to further discussions with OSV, which is conducting an internal blockchain initiative dubbed ChainForce[6].
Chester explained:
“We actually did not go the normal route. The normal route is to apply, get judged internally by various analysts, come in for a pitch to a bunch of judges, get judged by Orange partners, then the decision is made. We skipped the first three steps since we already had a strong relationship with the blockchain innovation teams.”
Orange did not immediately respond to comment. However, in a statement[7] accompanying the announcement, Pierre Louette, deputy CEO and secretary-general for digital investments at Orange, said that its incubator program positions the company to take advantage of new technology trends.
“By collaborating with startups, our goal is to anticipate future trends in the digital industry, whether it be the development of innovative technologies or new business models,” he said.
The US Department of Justice (DOJ) convened a first-of-its-kind conference on digital currency and the blockchain in San Francisco today.
According to the agency, the goal of the event was to unite the private and public sector in discussions centered on strategies for limiting cybercrime perpetrated with the emerging technologies.
The unpublicized event, organized by the DOJ’s Digital Currency Task Force and held at the Federal Reserve Bank in San Francisco, saw 175 industry participants engage in panel discussions that sought to emphasize its core theme from the point of view of entrepreneurs, law enforcement officials and regulators.
Though no participants were named in formal release, Twitter images from the event show speakers included Xapo[1] CEO Wences Casares, Coinbase[2] founder Fred Ehrsam and Ripple[3] CEO Chris Larsen, among others.
In remarks, US Attorney Brian J Stretch positioned the event as one that sought to forge a common ground between representatives of the government and the distributed financial technology sector:
“As emerging technologies such as digital currency and blockchains expand into new and legitimate applications, it becomes all the more critical for industry leaders and government agencies to share insights and perspectives in order to combat the illicit use of these technologies.”
Further addressing the need for dialogue was FinCEN Director Jennifer Shasky Calvery, who noted that despite her department’s early efforts to understand the industry, continued discussions are needed due to the evolving nature of the technology.
“We only opened the door for the hundreds of other questions beyond our anti-money laundering perspective,” Calvery said.
The event was previously hinted at by DOJ Digital Currency Crimes Coordinator Kathryn Haun in an interview with CoinDesk[4] in September in which she spoke at length about the multi-agency task force and its goals.
At the time, Haun sought to stress that the US government was broadly seeking to engage the digital currency and blockchain industry in discussions that would provide clarity on key issues for all ecosystem participants.
Distributed ledger startup R3CEV announced the addition of three new banking partners to its blockchain project last week, raising the total number of banks involved to 25.
The list of partners includes banking giants such as Goldman Sachs and Santander, both of which have already dipped their toe in the world of crypto through investments in Circle Internet Financial[1] and Ripple[2], respectively.
For some of the other banks, this partnership with R3 marks their debut in the increasingly trendy distributed ledger space, which is broadly seeking to apply the underlying technology of bitcoin to use cases for enterprise financial institutions who have expressed reservations about working on the bitcoin network.
Though critics are quick to assert[3] the potential long-term benefits of a global distributed ledger, R3’s banking partners are currently working with the startup on alternatives.
Listed by Forbes as the third largest company[7] in the world in 2010, Bank of America is a multinational banking and financial services corporation.
The company – which employs approximately 200,000 people worldwide – is part of the “Big Four Banks” in the US alongside JPMorgan Chase, Citi and Wells Fargo
Last month, the US Patent & Trademark Office (USPTO) published a patent[8] filed by Bank of America which sets out to protect a system for wire transfers using the underlying blockchain of a given cryptocurrency as the payment rails.
In December 2013, Bank of America became one of the first banks in the US[9] to discuss bitcoin, issuing a client note which said that the digital currency had “clear potential for growth”.
2. Bank of New York Mellon
Founded in: 2007 as a result of the merger of The Bank of New York and Mellon Financial Corporation
BNY Mellon is a global investments company employing more than 10,000 people and delivering investment management[11] services in 35 countries and over 100 markets.
As of 31st December 2014, BNY Mellon had $28.5tn in assets under custody or administration, and $1.7 tn in assets under management.
In April this year, The Wall Street Journal reported that the bank’s developers had been experimenting[12] with bitcoin’s open-source code for use as part of the bank’s newly created corporate recognition program. The so-called “BK Coins” would be awarded to staff for contributions to the bank’s software development.
Last month, the American multinational banking corporation published a report[13] that said blockchain technology could potentially transform payments.
The company’s VC arm Mitsubishi UFJ Capital Co[17] invested in bitFlyer’s recent $4m funding round completed through third-party allotment, which consists of issuing new shares to a limited number of investors.
Citi bank is the consumer division of financial services multinational Citigroup.
Bailed out by US government[19] in 2008, the bank was also awarded Global Bank of the Year at London-based financial magazine The Banker‘s annual awards.
Speaking at Consensus[22], held in New York in September, Debra Brackeen, the global head at Citi’s Innovation Center said the bank was looking at blockchain’s use cases in clearing, settlement and trade finance.
The German global banking and financial services company employs over 10,000 people and is active in 70 countries[28] where it specializes in investment banking, asset management and transaction banking.
A recent letter[29] from the German megabank suggested that it was exploring the use of the blockchain for a series of potential applications.
HSBC claims[32] to be one of the world’s largest banking and financial services organisations, serving approximately 48 million customers through its global businesses.
Present in 72 countries across Europe, Asia, the Middle East, North Africa, North America and Latin America, the bank has over 6,000 offices worldwide. It is listed on the London, Hong Kong, New York, Paris and Bermuda stock exchanges.
The National Bank of Australia is one of the country’s four largest[39] financial institutions by both market capitalisation and clients.
Employing over 10,000 people, the organisation operates in Australia, New Zealand, Asia, the UK and the US.
In April 2014, the bank distanced itself from bitcoin[40], informing bitcoin-related customers that it would be closing their accounts within a month. The news proved significant at the time because the bank had to date, been viewed as one of the country’s most bitcoin-friendly banks.
The Royal Bank of Canada is one of the country’s largest banks, serving more than 16 million clients throughout offices in 40 countries.
In May 2013, the Royal Bank of Canada told Canadian bitcoin exchange Virtex that it would shut down its accounts[44]. According to Virtex’s founder, Joseph David, the bank did not specify the reasons for its decision although he said it may be related to Virtex not having the necessary documentation to operate.
Skandinaviska Enskilda Banken AB, also known as SEB, is a Swedish financial group.
In an interview with CoinDesk[48] in September, Rasmus Järborg, head of strategy at SEB, said the bank’s new partnership with R3CEV was part of its ongoing research into blockchain technology, which intensified following bitcoin’s price spike in late 2013.
He added:
“As a leading corporate and institutional bank, the business-facing applications are immediately of more interest to us. However, we are a universal bank in Sweden and the Baltic countries and as it is quite early to predict which part of our business will be impacted first. We are looking at both [consumer and business applications] at the moment.”
“Underneath [bitcoin] lies the technology of the blockchain and I think that will be transformative.”
In October, the UK banking giant signed contracts [57]with graduates of its New York-based FinTech accelerator, two of which are expected to partner with the company on blockchain-related applications.
The multinational Spanish banking group was created from a merger of Banco Bilbao Vizcaya and Argentaria in 1999 and is now one of Spain’s biggest banks.
Speaking at the time[61], BBVA Ventures executive director Jay Reinemann, said his company’s investment should not indicate that BBVA is willing to open itself up to bitcoin companies just yet.
A report published[62] in August said that blockchain technology would first be useful in the payments space, where it would eradicate the need for intermediaries and decrease costs for banks.
The Commonwealth Bank of Australia (CBA) announced in May[65] that it would use Ripple technology to facilitate payments between its subsidiaries.
CBA’s Chief Information Officer David Whiteing was quoted in the press as saying that the bank had “done a whole bunch of experiments” with bitcoin and other cryptocurrency technologies.
“Bitcoin is a protocol which is now being replicated by non-asset based vendors like Ripple and others. We absolutely see that’s where it’s going to go. The bank has a role to play in that,” he added.
“In just five years, the new bitcoin currency has grown from a small niche project by some computer geeks into a global phenomenon – despite some dubious transactions. And devotees of the bitcoin system are already predicting the next upheaval in payment transactions. But first things first: What are bitcoins anyway? And why are they so groundbreaking?”
Earlier this year, Goldman Sachs published a report[72] which stated that bitcoin and other cryptocurrencies were part of a technology “megatrend” which could change the fundamental mechanics of transactions.
JPMorgan Chase’s chairman Jamie Dimon has been one of the more outspoken critics of bitcoin and digital currency, while acknowledging that his bank could learn[76] from disruptive payment systems such as bitcoin earlier this year.
Dimon issued new remarks about bitcoin and blockchain technology during the Barclays Global Financial Services Conference in New York in September.
During his question-and-answer session, Dimon noted that JPMorgan was optimistic about the potential use cases[77] for distributed ledger technology, but has continued to suggest that global governments will not allow the use of cryptographic tokens as digital currency for much longer.
The Royal Bank of Scotland (RSB) is a subsidiary of The Royal Bank of Scotland Group plc, which together with NatWest and Ulster Bank, provides banking facilities across the UK and Ireland.
RBS is expected to demo[80] its blockchain-based proof-of-concept – which uses Ripple’s technology – as part of a £3.5bn technological revamp.
More recently, the bank made headlines after its technology chief officer said it had experimented with its its own in-house cryptocurrency[81].
The corporation – which employs over 10,000 people –is one of the oldest financial institutions in the US.
According to a report by The Wall Street Journal[84], State Street is currently experimenting with the technology for use in institutional banking as well as the processing and monitoring of loans, mortgages and other financial products.
At the time, company representatives said they were curious about whether the bitcoin blockchain was the right technology for asset transfer use cases.
State Street senior managing director Hu Liang told the media outlet:
“That’s what we’re trying to understand. From a business point of view, we’re trying to understand identity. Between partners in a transaction, you want to see each other’s trades but you don’t want others to see them. And you want regulators to have oversight. So, how do we do that?”
The Swiss investment bank made headlines[86] earlier this year after it announced it was set to open a blockchain research lab in London’s Canary Wharf.
In interview with CoinDesk, Alex Batlin, the former engineer who now heads the research lab, said:
“In principle it’s [blockchain technology] probably one of the biggest confluences of technology and business right now.”
Mizuho Bank, Ltd was created as the result of a merger between Mizuho Corporate Bank and Mizuho Bank in July 2013.
The bank has offices in over 30 countries and according to its LinkedIn page[90] is one of the largest financial services companies in the world, with total assets amounting to over $1.6 tn as of March this year.
Of the banks involved, Mizuho has perhaps the longest track record of engaging with the bitcoin and blockchain industry, having served as a banking partner for now-defunct bitcoin exchange Mt Gox.
Mizuho is currently embroiled in ongoing lawsuits[91] related to its partnership with the company.
UniCredit is a leading commercial bank in Europe with an international network spanning 17 European countries and 50 markets. The bank has approximately 9,000 branches and employs almost 150,000 people.
The Bitcoin ATM industry is unlikely to last in its current form, according to Devon Watson, VP of global software and strategy at ATM and financial services giant Diebold.
In a new interview, Watson discussed what he suggested was the uncertain future for the bitcoin ATM[1] market, which since late 2013[2] has manufactured speciality machines for the conversion of physical fiat funds into digital currency. Today, more than 400 bitcoin ATMs are in operation globally, with the number of units doubling in the last year, according to CoinDesk’s Q3 State of Bitcoin[3] report.
Watson, however, believes that bitcoin ATMs have so far relied on a “flawed distribution model”, one that while offering benefits to a small market of consumers, is unlikely to develop into a competitive business when compared to more versatile, traditional offerings such as those offered by Diebold.
“[Bitcoin ATMs] provide only one benefit to the customer, whereas the majority of ATMs have a number of different possible transactions and meet a number of needs,” Watson told CoinDesk at Money20/20[4] in Las Vegas last week, adding:
“I think it is fair [to say] that it is probably pretty difficult to be a one-trick pony.”
Watson, who heads strategy and R&D for the $3bn company, went on to say that he believes the business experiment was successful at demonstrating that physical kiosk offerings are still a necessary part of increasingly digital financial services.
Watson said that Diebold has studied how it could use the blockchain for “transactional purposes”, including offering digital currency withdrawals and transfers.
Still, he called investigating such capabilities an “area of interest” for the company, though one that would be determined by the needs of its customers.
“We’re at the stage where banks aren’t adopting [bitcoin] for those use cases, but you have reasonable line of sight to see these things coming together,” he continued.
Should the need arise, however, Watson called implementing the technology “the easy part” for the firm. He was less clear about any internal testing that has gone on at Diebold, but stated that the company had not yet released “any consumer-facing product” using bitcoin or the the blockchain.
“For us it’s about when it might make sense and how,” he said.
Blockchain interest
Like many at the Money20/20 conference, Watson was quick to indicate that Diebold was now more interested in blockchain technology, specifically permissioned blockchains or distributed ledgers where a select number of financial institutions or entities share a transaction network.
Watson suggests he sees such applications as holding the potential to help curb issues surrounding data privacy laws and data security related to payments.
“There’s a lot of interesting opportunity for permissioned systems in general, but there are other technologies, such as coding languages. We think that is interesting to pull into the banking sector,” he continued.
Watson said he believes that the blockchain could fuel use cases related to upgrading legacy financial infrastructures, though he cautioned that advancements on such problems were perhaps unlikely to be easily gained.
“It’s still early, the tech is nascent and these are big complex projects where [those involved] will be risk averse,” he said.
Watson said he has been impressed by the new applications for blockchain-based assets, noting that he was “most excited” when introduced to how property titles could be transferred via these systems during a visit to MIT.
Digital cash
Despite the short-term roadblocks to the technology’s proliferation, Watson said he is more broadly optimistic that new solutions will create alternatives to physical cash.
Such a transition has been top of mind for some time for Diebold, which in July 2013, introduced its cardless Mobile Cash Access solution[5], which allows consumers to transact with a mobile device at the ATM.
“There’s around $5tn in cash circulating the world, and that cash circulation is inaccessible to payments companies,” Watson said.
Watson predicts such a transition is likely to happen first in the developed world, as he believes these markets have a “better appetite” for new financial tools, citing developments in nations such as Kenya and India, which had to adapt to local challenges.
Diebold’s latest annual report[6] indicates it sees a “significant percentage of revenue” from operations outside the US, earning more than 50% of its revenue in 2013 and 2014 from initiatives in international markets.
“I think it will be highly dependant on region and highly dependant on the customer base that that the financial institution is targeting, financial infrastructure benefits from tapping into bitcoin and the regulatory environment being open to it,” he explained.
Mass consumer mindset
When asked about the possible paths forward for startups in the bitcoin ATM market, Watson cautioned that despite his pessimism about industry prospects, “the jury is still out” in regards to their long-term success.
Watson said that while no companies serving the bitcoin ATM space had “failed completely”, neither had any achieved “resounding success”.
As for how he would advise those serving the market going forward, he was general in his remarks, encouraging product managers and company founders to consider everyday consumers when building products.
“It’s really difficult as a founder or whoever has the idea to take a concept and really use a lot of empathy to apply the mass consumer’s mindset to what you’re trying to build,” he said.
However, he acknowledged the difficulty that comes with attempting to think big given the long expected curve of digital currency adoption, concluding:
Major bitcoin industry companies including Digital Currency Group (DCG) subsidiary Genesis Trading and bitcoin hedge fund Binary Financial are set to participate in a government auction of just over 44,000 BTC (worth $18.3m at press time) to be held on Thursday.
Announced in October[1] by the US Marshals Service (USMS), the auction, to be held from 12:00 to 18:00 UTC, will see the sale of the last remaining confiscated from convicted Silk Road operator Ross Ulbricht[2], who was sentenced to life in prison this May.
The initial auction saw investor and Draper Fisher Jurvetson (DFJ[3]) partner Tim Draper purchase nearly 30,000 BTC[4], and was seen by some as a turning point in bitcoin’s history, as many took the sale as a sign it was moving toward broader acceptance.
“In terms of the auction, it signaled a really important turning point in framing bitcoin as a legal and legitimate tool,” Sunny Ray, CEO of India-focused bitcoin exchange Unocoin[5], recalled in conversation with CoinDesk.
The mood around the upcoming auction, however, is markedly more subdued.
Genesis Trading[6] CEO Brendan O’Connor said its auction participation was simply a business decision.
“From our perspective, any time we have an opportunity to buy or sell large quantities we take advantage of it. This is just another really good opportunity to do that,” he said.
Involvement unknown
Still, O’Connor suggested he believed many previous auction participants would enter the bidding process for similar reasons, though few confirmed their involvement at press time.
Representatives from Cumberland Mining[7], Pantera Capital[8], Falcon Global Capital and investor Tim Draper did not respond to press requests regarding the auction.
Further, the USMS that indicated it would not release figures for the number of auction participants, though it has historically done so on the day of the auctions.
Elsewhere, representatives from regulated bitcoin exchanges such as Coinbase[9] and itBit[10] declined to comment on their potential involvement with the auction.
Gemini[11] bitcoin exchange founders Cameron and Tyler Winklevoss told CoinDesk they will not be participating, going so far as to criticize the strategy of doing so:
“We don’t generally participate in auctions where there is limited information, a high likelihood of a winner’s curse and a low likelihood of achieving an efficient price.”
The price of bitcoin surpassed the $450 mark today for the first time this year.
According to CoinDesk’s USD Bitcoin Price Index[1] (BPI), bitcoin opened the day at $400.71 before increasing 12.5% to $450.60 at10:49am (UTC). It has since increased to $452.17 at press time.
Today’s peak price marks another yearly high for the digital currency, which passed the $400 mark[2] for the first time since November 2014 just yesterday.
In the last month, the price of bitcoin has increased by 88.5%, having closed on $238.69 on 4th October.
Bitcoin’s performance in the last three months have seen its value rise by 58%, closing the day’s trading on $284.50 on 4th August.
Today’s peak price marks an increase of 43% since the beginning of this year, when bitcoin closed at $313.92 on 1st of January before plummeting to $177.28[3] on 14th January.
Bitcoin enthusiasts from across the world revelled in the news that the digital currency’s price reached a new annual high earlier this week.
The cryptocurrency peaked at $333.75 at 08:16 UTC on 30th October, reaching its highest level since January 2015 – when it famously dropped below the $200 mark[1].
Speaking to CoinDesk, Bobby Lee, CEO of China-based bitcoin exchange BTCC, attributed bitcoin’s recent surge to a series of factors, saying:
“I think this price rise is a combination of the recent increased usage … and also the recent good news in the industry, such as the no-VAT ruling in Europe, the end of the auctioning of Silk Road bitcoins, etc.”
“Once again, people are re-discovering the many positive aspects of using bitcoin for payments as well as for holding bitcoin as a decentralised, safe and appreciating digital asset, immune to national central bank policies,” he continued, adding that BTCC has seen a surge in trading activity .
“It’s been slowly rising since mid-September,” he noted.
Macro economic events
Speculation about bitcoin’s price movements has always been rife with commentators often examining global macro economic events in an attempt to decipher the fluctuations.
According to the Bitcoin Price Index[2], the digital currency’s price has been steadily rising since 21st September, when it opened on $230.86 and went on to close the day’s trading at $226.61.
Since then, bitcoin’s price has continued trending upwards, rising by over 44% to reach its peak price on 30th October.
A closer inspection of CoinDesk’s BPI shows that bitcoin’s price increased following the European Court of Justice’s ruling which exempted bitcoin from VAT[3] across all EU member countries on 22nd October.
Further afield, the exertion of capital controls in China[4] also coincided with a price spike at the end of September.
A China driven surge?
Robert Viglione, a PHD student, who recently published an academic paper[5] about the differences in bitcoin’s price across the world, shared his take on the recent price rise, telling CoinDesk:
“It’s tough to ever say definitely what’s driving asset price movements, but the most compelling story at the moment comes out of China. True to bitcoin’s nature as a disaster asset, as China’s government steps up capital controls to limit one widely used avoidance path, its citizens appear to be shifting resources to the next best option, cryptocurrencies.”
It is not of the first time that the implementation of capital controls by governments has a perceived influence in bitcoin’s trading value.
Earlier this year, bitcoin passed the $300 mark, gaining increasing momentum[6] in the wake of the Greek crisis.
Like Lee, Vigilione noted the upsurge in trading among some of China’s bitcoin exchanges:
“Chinese exchanges seem to be trading at about a 10% market at the moment, which is a big shift from a historical premium of about 48 basis points below the global average. Clearly something is happening in China; whether that’s the primary driver behind the recent price run-up isn’t as obvious, but is certainly as good a story as any.”
Lee elaborated on this theory, noting that bitcoin’s price was trading up to 10% higher in the Chinese market in comparison to USD/BTC trades.
However, the CEO ruled out that the recent price spike had been triggered by foreign currency controls.
“Despite what people are suggesting, from what I can tell, it’s not a currency controls issue, with people wanting to move RMB out of the country,” he said. “Rather, it’s just higher demand for buying bitcoins, either for payments, speculation, or for long-term holding.”
A combination of factors
For Harry Yeh, managing partner at investment managing company Binary Financial, bitcoin’s value increase could be attributed to a wide range of factors which include recent positive news about blockchain technology. Speculation in China, however, could also be driving the price up, he said.
Tim Enneking, chairman at the Crypto Currency Fund, was of the view that the recent focus on blockchain technology was receding and that bitcoin was attracting more attention, as people realize that its blockchain is the most pervasive of available options today.
Other short term factors, according to Enneking, included the launch of the Winkelvoss’ bitcoin exchange Gemin[7]i, a recent court decision that exempted bitcoin purchases from value-addex tax in the EU, and MasterCard’s involvement[8] in Digital Currency Group’s recent funding round.
