The technology behind Bitcoin — a peer-to-peer payment network whose transactions are recorded in a public distributed ledger called the blockchain — is not going away anytime soon.
Advisers may or may not think digital currency is worthwhile, but both cryptocurrency and the technology that powers it are slowly but surely creeping into the mainstream.
Nasdaq plans to be the first stock exchange to try to tap into the technology's potential. The exchange recently announced it was partnering with Chain, the ledger behind Bitcoin and its blockchain technology, to facilitate the secure issuance and transfer of shares of privately held companies.
The blockchain grows as users add more “blocks” filled with financial information like balance transfers and other recorded transactions. The connected blocks serve as an ongoing transaction log.
The technology became popular through Bitcoin and other cryptocurrencies, but Nasdaq sees potential for it to be a tool to accomplish so much more, including using it to increase the transparency of public stock shares and private assets. That's why it's joined forces with the infrastructure provider, Chain.
“If you look at the perspective of a blank sheet of paper, it can go anywhere,” said Fredrik Voss, deputy head of Nasdaq commodities. He said advisers will start to see the potential for it, because they will be able to keep track of issuances of shares and transactions.
“If this works out, we will create much more efficiency and transparency in these markets,” Mr. Voss said. “It will be more secure to engage in trading and ownership of these assets.”
By partnering with Chain, Nasdaq is solidifying its stance that this technology belongs in the finance world, while beating competing exchanges to the punch.
Earlier this year, the New York Stock Exchange also stated it plans to take
digital currency more seriously.
Even Wall Street agrees with the potential of cryptocurrency and blockchain technology.
According to a Greenwich Associates survey, 94% of the 102 financial professionals who responded said blockchain can be used in finance. Among various other applications, it could speed up and simplify trading processes.
Venture capitalists Cameron and Tyler Winklevoss, who achieved fame for a successful lawsuit related to their involvement in the founding of Facebook, have boasted of the blockchain technology
on numerous occassions. They have led a seed funding round for Bitcoin payment processor BitInstant.
But there is still much resistance. In its current state, blockchain is most popular for what it powers, Bitcoin. It isn't being taken too seriously in many areas of the financial services industry, and it has faced scandals.
For example, Mt. Gox, the largest exchange for storing and trading Bitcoin, collapsed last year and nearly $500 million in Bitcoins went missing — the company claimed they had simply disappeared from its computer systems. On Saturday, the Japanese police arrested Mark Karpeles, the head of the hub, accusing him of illegally adding $1 million to an account under his control, The New York Times reported.
DIVIDED OPINIONS ON POTENTIAL
Despite such setbacks, robo-adviser Hedgeable is an exception to the legion of skeptics and fence-sitters. Mike Kane, chief executive of the automated investment service, said he considers it to be an alternative asset class and that one in four of the company's clients open a Bitcoin account.
“The more that Bitcoin gets used and the more adoption of blockchain, the better,” Mr. Kane said. “It is one of the most disruptive technologies of the last few decades, and we are really in the first inning of a long game.”
Although the buzz around the digital currency technology is getting stronger, advisers continue to
steer clear of Bitcoin and other virtual currencies. Many say it's just not a stable place for their clients to be.
Erik Lai, a financial adviser with Archvest Wealth Advisors, said Bitcoin has potential, but it's not ready for prime time.
“If currencies around the world really do experience problems, I still don't think Bitcoin is necessarily going to be the solution,” Mr. Lai said. “Nothing is backing it — at least the U.S. dollar has the government and the euro has the European Central Bank.
“But Bitcoin, nothing is behind it but code,” he said.
Still, he said he could see how some would be inclined to use it, similar to someone playing the lottery.
“It is like allocating part of it to one of those unforeseeable types of events and just hedging your bets,” Mr. Lai said. “Because ultimately, you don't know.”
