Financial Stability and Investment in the Age of Bitcoin and Blockchain Technologies

An international body that monitors the global financial system suggests that decentralized financial technologies may not be all bad. The Financial Stability Board (FSB) published a report on the regulatory and governance implications of decentralized financial technologies, suggesting that “the application of decentralised financial technologies may reduce some of the financial stability risks associated with traditional financial institutions and intermediaries.”

In addition to increasing diversity in the financial system and reducing the concentration of service providers,

decentralised systems may – if appropriately secure – be more resilient to cyber risk than highly centralised systems, particularly in terms of the integrity of their record-keeping and service availability. This is due to how they disperse the recording of information, rather than concentrating it within a single node or system.

The well-documented report covers the range of use cases and provides an even-handed assessment of the risks.

Just in time for the increase in the price of bitcoin investments, Bitwise Investments published a detailed study of bitcoin trading and how market perceptions in the mainstream media and general public are out of line with the reality of the market. Bitcoin is not exactly the wild West of investments that it’s portrayed to be: “The modern bitcoin spot market is both significantly smaller and significantly more efficient than commonly understood.”

That’s because “only a small percentage of reported trading may be authentic,” Bloomberg reports in an article on the importance of bitcoin futures provided by CME Group and Cboe. The article cites the Bitwise study, along with reports from the Blockchain Transparency Institute.

Volume numbers are “wildly inflated by a combination of fake volume and wash trading that dramatically skews the public’s view of the bitcoin market in a negative way,” the Bitwise report charges. Economic and Non-Economic Trading In Bitcoin: Exploring the Real Spot Market for the World’s First Digital Commodity tells the story of the surprisingly rational market that’s “left after you remove the fake volume.”

The report is an addendum to the firm’s submission to the U.S. Securities and Exchange Commission (SEC) for a rule change to permit the listing of a bitcoin exchange-traded fund.