Bitcoin has been a controversial industry with many questioning its long-term viability. Ron Quaranta, CEO of Digital Currency Labs, a FinTech and strategic advisory company argues that the sector is not just a flash in the pan.
Based on the level of participation of sophisticated financial services participants and the development of derivatives markets, I do not believe that Bitcoin is just a trend. It will take time but it represents a natural kind of evolution to a professional level of trading that the marketplace needs to see in order to mature.
I also think that the introduction of regulation will further its progress and help lower one of the barriers preventing institutional investors from coming into the space. These participants have come to expect safeguards to protect the end customers and having those in place should be beneficial. Regulators in the US and Europe are currently looking at what structures need to be implemented.
The industry should also get a boost from the development of professional organisations such as the
Wall Street Bitcoin Alliance (WSBA), which has been recently created by business and technology executives and leaders within the financial industry. They range from banks, broker-dealers, institutional investors and hedge funds. The aim is to guide and promote comprehensive adoption of digital currency and blockchain technology across financial markets. WBSA will not only interact with national and international government agencies but also regulators, as well as technology innovators.
I think one of the biggest challenges has been the lack of liquidity. This has been a particular concern with hedge funds and institutional investors. They want to be able to access markets that are truly liquid and I think this will change as the industry evolves. I expect we will continue to see institutionally focused Bitcoin derivatives exchanges in the US and Europe roll out different and new capabilities. This could also lead to consolidation in the older legacy Bitcoin cash exchanges space. There are several of them globally and I think we will see them either close up shop or get merged into other exchanges.
* Comments from recent DerivSource podcast “Bitcoin Derivatives: Trendy or Gaining Traction”. See podcast notes page to listen to the podcast, view the transcript and see related articles and resources.
