A Bitcoin ATM is seen inside a bookstore in Acharnai in northern Athens. A survey by Greenwich Associates has found 94% of respondents saying blockchain — the ledger that drives bitcoin — could be used in finance, according to a report released yesterday.
Bloomberg/New York
Bitcoin supporters argue the software that makes the digital currency possible could accelerate trading on Wall Street. A new survey suggests financial-services professionals are on board.
Greenwich Associates found 94% of respondents say blockchain — the ledger that drives bitcoin — could be used in finance, according to a report released yesterday. The software is touted as a way to speed up and simplify how trades of everything from stocks to loans and derivatives are processed.
“Revolution in the making — that’s what this feels like,” Kevin McPartland, a co-author of the study with Dan Connell, said in a phone interview. “There’s a real opportunity for some change here.”
A series of startups want to use the technology to execute and settle trades, saving Wall Street banks and investors billions of dollars by radically reducing a transaction’s lifespan. That would free up capital that’s pledged to back trades until they’re settled, such as in the bank loan market where it took nearly 23 days to settle trades in 2013.
McPartland and Connell, part of Greenwich’s market structure and technology practice, interviewed 102 executives at banks, asset managers, financial technology firms and exchanges for their first research report on blockchain.
Some 84% of respondents said blockchain could reduce the risk a trade won’t settle and the time that process takes, while 74% said it could alleviate the chance your counterparty to a trade won’t make good on the deal.
Markets where there is the least amount of trading infrastructure in place that still have high volume of transactions are the most likely to be affected by blockchain, McPartland said. Those include the loan market and trades in private over-the-counter derivatives that can’t be backed by clearinghouses.
Startups focused on bringing blockchain into finance have attracted funding and well-known supporters for the past year.
Last month, Symbiont, which plans to use blockchain to make it quicker and cheaper to transfer assets between buyers and sellers, raised $1.25mn from financial industry heavyweights including former New York Stock Exchange chief Duncan Niederauer, former Citadel executive Matt Andresen, and two co-founders of high-frequency trading firm Getco, Dan Tierney and Stephen Schuler.
Other firms investigating finance-related uses of blockchain include Digital Asset Holdings, headed by former JPMorgan Chase & Co banker Blythe Masters; Nasdaq OMX Group; and the New York Stock Exchange.
As deployed with bitcoin, blockchain is a public, anonymous database that’s virtually impossible to tamper with. Some want to strip blockchain away from bitcoin for use on Wall Street, creating a private system where trading partners are known to each other.
“A number of hotly debated questions remain unanswered regarding capital markets’ adoption of distributed ledger technology,” the Greenwich analysts wrote in the report. “Can Bitcoin and the blockchain be separated effectively? Can private blockchains operate without losing the benefit of the public blockchain?” They added: “It is not bitcoin itself that has the potential for changing the institutional capital markets. The blockchain, the technology that allows bitcoin to exist and be transferred safely without an intermediary, presents a much bigger opportunity for financial services firms.”