Digital-currency enthusiasts on Wall Street and pro-bitcoin venture capitalists argue newly regulated and professional exchanges are needed to generate the kind of trading volumes that would smooth out bitcoin’s price, whose volatility is seen as an impediment to its widespread adoption
News coming from Bloomberg, stating the company plans to list bitcoin prices on its financial data terminals, a move that could give the volatile digital currency a stamp of respectability and spark interest in U.S.-based trading platforms.
According to a blog post on Bloomberg’s corporate website, the more than 320,000 subscribers to the firm’s terminals will now have access to bitcoin prices from Kraken and Coinbase, both out of San Francisco. Kraken bills itself as a bitcoin exchange while Coinbase, which provides payment processing for merchants and digital wallets for individuals, functions more as a broker-dealer.
One person familiar with Bloomberg’s decision said it was made in response to requests from hundreds of customers wanting access to bitcoin prices. The facility, which allows users to chart prices, has been in development since last year.
“While bitcoin and other virtual currency markets are still nascent, they represent an interesting intersection of finance and technology,” wrote Tod Van Name, Bloomberg global head of fixed income, currencies and commodities in the blog post. “Given that Bloomberg sits squarely at that intersection, providing pricing for this underdeveloped market is a natural fit for us.”
In relaying prices from the two exchanges, Bloomberg’s move doesn’t enhance or standardize existing prices like a newly engineered index from multiple price feeds would. The financial data provider said its move didn’t amount to an endorsement or guarantee of bitcoin and that customers wouldn’t be able to trade the digital currency on a Bloomberg terminal.
Still, investors could welcome the news as a vote of confidence in bitcoin, which has seen its price halved since December following a string of negative developments. Bloomberg terminals, a fixture on trading desks across Wall Street, are a key part of the trading infrastructure used by banks, hedge funds and other deep-pocketed professional investors, a group whose money could bring significantly more liquidity to bitcoin trading.
“On Wall Street, an investible asset class is considered to be something that’s quoted on the Bloomberg terminal,” says Barry Silbert, chief executive of SecondMarket Inc., which launched a bitcoin investment fund in September. He has predicted once Bloomberg quotes a bitcoin price it would open the currency up to “substantial institutional investor interest.”
The blog post hinted that more bitcoin products could be in the works, telling readers to “stay tuned for more.” It wasn’t clear whether a price index, trading functionality or some other enhancement was under consideration.
Bloomberg’s decision to draw prices from Kraken and Coinbase could provide a boost to those firms, raising their profile among professional investors. For Kraken in particular, which like Coinbase and other U.S.-based bitcoin businesses has been busily gathering U.S. regulatory backing for its operation, it could help it compete with offshore exchanges such as Slovenia-based Bitstamp and Bulgaria-based BTC-e, currently the two biggest bitcoin exchanges.
Bloomberg’s decision to publish bitcoin prices coincides with moves to develop high-tech, federally regulated exchanges that would cater to professional investors in the digital currency rather than the individuals who have comprised most of the trading volume until now. These include a new platform targeted at high-frequency trading firms launched by Atlas ATS in New York and Hong Kong, one from London-based Coinfloor, which claims to the first auditable bitcoin exchange, and a separate SecondMarket project to build an exchange for institutional investors.
According to an index from news site Coindesk, bitcoin’s price soared last year from $13.51 at the end of 2012 to an all-time high of $1,151.30 on Dec. 4. That was driven in part by increased adoption as businesses world-wide began accepting payments in the digital currency and as U.S. regulators signaled an unexpectedly accommodative stance toward the new technology, with legislation treating digital currencies as property.
But since then, the price has fallen sharply amid concerns over a crackdown in China, a hacking attack that briefly crippled the digital currency’s core network, and the collapse of Tokyo-based Mt. Gox, once the dominant bitcoin exchange.