Financial Services Firms are Rushing to Invest in Bitcoin and Blockchain Startups



CB Insights:

A relatively small number of startups have captured the large majority of financial services investments in the bitcoin and blockchain space. For example, four firms – Coinbase, Chain, Digital Currency Group, and Ripple – count 14 first investments by financial services firms in the space.

Wall Street Journal:

Banks feel the heat on their necks as fintech companies and nontraditional competitors angle to get into the financial services business. Discussion about blockchain technology and virtually unregulated emerging companies permeated The Clearing House annual conference Tuesday. The three-day event gathers bankers, lawyers and other financial services professionals to contemplate, and rub worry beads over, issues of the day.

Blockchain continues to throw bankers for a loop. Everyone’s experimenting – even the Bank of England has indicated an interest in digital currency based on the technology — and no one appears sure where it may lead. In the last year, venture capitalists have funneled more than $1 billion into companies working on blockchain projects, said Bart Cant, a principal at Capgemini Financial Services NA.

“Organizations from small startups to larger companies to governments – it’s clear blockchain is posing serious disruption to current business models,” Mr. Cant said.

Blockchain buzz is growing. The momentum is there, said Cheryl Gurz, managing director of emerging technologies at Bank of New York Mellon Corp, speaking on a panel. “New vendors and fintech companies are coming at us all the time. Why blockchain? I can’t answer it yet.”

One use with potentially big payoff would be for banks to gradually adopt blockchain ledgers gradually, as replacements for internal software that comes due for upgrades, said Blythe Masters, fellow panelist and CEO of Digital Asset Holdings LLC, which makes settlement and recording technology. Ms. Masters, in the late 1990s, helped develop the credit-default swap while at JPMorgan Chase.

Ms. Gurz wanted to hear more about that. “You’re saying IT guys should be giving us an option to pick blockchain” when upgrading or changing systems, she asked Ms. Masters, who confirmed that’s indeed what she meant.

John Collins, head of policy at Coinbase, a bitcoin-related startup, laid it plain: “Technology has disrupted all the unregulated industries and now it’s moving on to the regulated ones.”

Regulation dominated conference talk. Charles Horn, a partner at Morgan, Lewis & Bockius LLP who specializes in technology legal issues, noted that banks are well-versed in compliance and have clear rules to follow at the federal level. But emerging financial companies don’t. The lack of coherent regulation presents challenges in consumer privacy and protection, he said.

Mr. Horn advised consumers and companies alike to get real about privacy in the online age. That is, practice doubt. “Even for apps that say they don’t collect data, they can’t avoid it.” To avoid compliance and security trouble, he said, the tack all companies should take, whether heavily regulated or not, is to treat all data as sensitive and manage it closely.

See also The Landscape of Blockchain Companies in Financial Services