2014 was the year that the blockchain technology turned up on the radar at many institutions in the financial industry. The price of bitcoin had collapsed after a dramatic price rally peaking in November 2013 at $1,242 per unit on Mt. Gox which was the leading bitcoin exchange at that time. In February 2014, Mt. Gox closed after being hacked of some 650,000 bitcoin which comprised around 5% of all bitcoin in existence at the time.
For savvy incumbents paying close attention to the bitcoin phenomenon, this much was clear; it wasn’t so much bitcoin, nor the rampant price speculation that was the element of interest in this story. Rather, it was the underlying technology, the blockchain, that carried promise.
What the big banks and exchange operators would see in blockchain was a marvelous invention that allowed a group of participants to collectively manage and order a repository of events. The benefit of such a system — a shared ledger — was the ability to avoid the strenuous reconciliation process that characterizes the current financial landscape, unlocking capital as well as human resources preoccupied by that task. During 2015 and 2016 “blockchain not bitcoin” became a mantra of sorts in circles enamored by the opportunity of re-imagining the plumbing of the financial world.
There are indeed many processes in the financial industry that stand to gain a great deal from blockchain technology, also called distributed ledger technology (DLT). This includes utilization of techniques such as public key infrastructure (PKI), mutualization of APIs, IT infrastructure consolidation, and in many cases just general digitization. But an upgrade of the existing financial roads and rails doesn’t necessarily eclipse the demand for cryptocurrencies as such. Cryptocurrencies represent something different altogether. They’re an emerging asset class which makes one ask the higher-order questions, namely; what is money?
Many questions surrounding the future of cryptocurrencies remain up in the air. While the industry has come a long way since the collapse of Mt. Gox in 2014, there’s still a long road ahead — both in terms of overcoming the technical challenges at the protocol level, as well as in the services supporting the ecosystem.
But regardless of the stance one has on the long-term prospects of cryptocurrencies, there’s undeniably been a recent, massive surge in the speculative interest in these assets which sent the price on bitcoin skyrocketing during 2017. While the interest has been predominantly retail-oriented, more established actors such as the CME and the CBOE have recently introduced bitcoin futures contracts which will allow a broader range of institutional traders to enter the market as well.
This surge drove up the overall cryptocurrency trading volumes by orders of magnitude in 2017, which has brought virtually every popular cryptocurrency marketplace to their knees in terms of capacity and performance. As a result, there have been repeated shutdowns in trading prohibiting users to buy or sell bitcoins.
At Cinnober, we specialize in delivering trading solutions to financial marketplaces with some of the highest demands on performance and reliability in the world. In the twenty years that we’ve been operating, there’s rarely been a situation where we’ve seen a clearer opportunity to add value to the market by leveraging our technology and expertise.
As the interest shifts back from focusing merely on the blockchain technology to the cryptocurrency assets themselves, the emphasis returns to the need for more robust trading, clearing and custody solutions. We see the opportunity to match that need by bringing our state-of-the-art products and know-how to the cryptocurrency market, and help solve some of the challenges it is currently facing.