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As bitcoin’s price skyrockets and popular demand increases, some of the world’s largest wealth managers have started giving their clients the opportunity to invest in the digital asset.
Last week, Boston-based Fidelity facilitated investor access to the asset, and on Thursday, UK-based Hargreaves Lansdown followed suit.
Hargreaves Lansdown now gives clients the option to invest in an exchange traded note (ETN) that tracks the price of bitcoin. An ETN is an investment instrument typically listed on a major stock exchange that can be bought and sold similarly to a stock. As more well-known wealth firms give their clients access to bitcoin investment, interest in the asset by mainstream investors will undoubtedly rise. However, these firms also risk exposing consumers to the dangers associated with unresolved regulatory issues around bitcoin.
Bitcoin still exists in a regulatory gray zone, which makes it different from most other asset classes. Mainstream asset classes include securities such as stocks or bonds and tangible assets like art. The former typically have dedicated regulators — like the SEC in the US, while investment in the latter results in the ownership of a physical product. And in both cases, investors are clear about what they’re acquiring. However, in most jurisdictions, bitcoin is legally neither a security nor a tangible asset, and therefore does not fall neatly under any regulator’s mandate. At the same time, most mainstream investors don’t have a clear idea of the asset’s nature. This ambiguity, compounded by bitcoin’s relative novelty, arguably means that bitcoin investments are a special case and should be treated as such by existing financial regulators. Otherwise, it will remain unclear which regulators are responsible for consumer protections regarding the asset, putting investor capital at risk.
The onus is on regulators to classify bitcoin and increase emphasis on customer education. At the moment, only a few countries’ regulators are making serious attempts to establish clear legal frameworks to define and regulate bitcoin — and among those who have started, the approaches are very different. As such, regulators should start coordinating with each other to come up with an unambiguous status for the asset that clarifies under which regulators’ mandates it should fall. Moreover, regulators should consider devoting the same attention to enforcing customer education among incumbent wealth managers as they have been to the marketplace lending industry.
Nearly every global bank is experimenting with blockchain technology as they try to unleash the cost savings and operational efficiencies it promises to deliver.
Banks are exploring the technology in a number of ways, including through partnerships with fintechs, membership in global consortia, and via the building of their own in-house solutions.
Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on blockchain in banking that outlines why and in what ways banks are exploring blockchain technology, provides details on three major banks’ blockchain efforts based on in-depth interviews, and highlights other notable blockchain-based experiments underway by global banks. It also discusses the likely trends that will emerge in the technology over the next several years, and the factors that will be critical to the success of banks implementing blockchain-based solutions.
Here are some of the key takeaways from the report:
- Most banks are exploring the use of blockchain technology in order to streamline processes and cut costs. However, they are also looking to leverage additional advantages, including increased competitiveness with fintechs, and the ability to use the technology to create new business models.
- Banks are starting to narrow their focus, and are increasingly honing in on tangible use cases for blockchain technology that solve real problems faced by their businesses.
- Regulators are taking an increased interest in blockchain technology, and they’re working alongside major banks to develop regulatory frameworks.
- Blockchain-based solutions will start to emerge in different areas of financial services. The most successful solutions will solve specific problems for banks and attract a large enough network to create widespread benefits.
In full, the report:
- Outlines banks’ experiments with blockchain technology.
- Details blockchain projects at three major banks — UBS, Credit Suisse, and Banco Santander — based on in-depth interviews.
- Discusses the likely trends that will emerge in the technology over the next several years.
- Highlights the factors that will be critical to the success of banks implementing blockchain-based solutions.
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