The new study, prepared by TABB Group, says the adoption of the blockchain within capital markets is expected in the near future. According to the company’s research analyst, Shagun Bali, the application of the technology is a matter of “when, and not if”, with first use cases anticipated as early as Q2 of 2016.
The report, called “Blockchain Technology: Pushing the Envelope in FinTech”, offers an overview of the major industry players, describes the advantages of the blockchain technology and provides timelines for five use cases.
Bali states the blockchain has the potential to improve electronic transactions on capital markets by using cryptographically secured networks, thus eliminating the need for third party intermediaries. The key benefits of the technology include higher speed, increased liquidity and lower cost of transactions. Besides, the complete automation of the process reduces the risk of human error.
The adoption of the technology for syndicated loans, the report states, is predicted in Q2 2016, while use cases for derivatives are expected not earlier than in 2-5 years. Meantime, the adoption of the technology for equity clearing may take up to 10 years.
“Within capital markets, a number of top use cases are coming to the fore, opening new opportunities for efficiency and generating revenue from greenfield projects, including private equity, interbank payments and corporate debt, among others,” the research reads.
Financial institutions are now studying the future applications of the technology, focusing on three inefficient markets: interbank payments, syndicated loans and equity shares. In 2015, the overall investment in blockchain startups totaled $66.8 million. In comparison, in 2013 and 2014 the amount of funds raised by fintech companies amounted to $51.2 million.
“The blockchain landscape and evolving ecosystem present a unique opportunity and a fundamental foundational element for additional innovation in financial markets. However, further due diligence for defining industry standards with regards to settlement, counterparty and other transactional risks involved are critical,” Bali said.
Although many in the industry believe the technology will replace all clearing houses, such as London Clearing House (LCH) and Depository Trust & Clearing Corporation (DTCC), Bali says it is unlikely to happen. Instead, blockchain may only drive their growth and improve their processes.
“As it evolves and matures, blockchain and/or distributed ledger technology will allow these institutions to improvise on existing systems and processes,” the report reads.
The report also covers the problems of the blockchain’s further development that should be overcome, including lack of regulatory framework. “Blockchain requires further due diligence for defining industry standards with regards to settlement, counterparty and other transactional risks involved. The market needs regulations to maintaining a balance between security and future mass-market blockchain scalability.”
Last week, bitcoin showed one of the most huge price surges over the last months, escalating to over $500. According to bitcoinity.org, the bitcoin trading volume reached 14.4 million bitcoins during the week, what is its highest level ever. The figure is equal to the total number of digital currency in circulation. Notably, most of the trading volume comes out of Chinese exchanges.