The embrace of Wall Street could break the Bitcoin

Ready or not, Wall Street is coming for Bitcoin. Intercontinental Exchange, owner of the New York Stock Exchange and one of the largest providers of financial market infrastructures in the United States, recently stated that it intends to initiate a regulated digital resource exchange. This could change Bitcoin immensely, and depending on who you ask for it, maybe not for the best.

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For those who would like to see the Bitcoins get a more widespread adoption, this is a huge development. In addition to the NYSE, Intercontinental Exchange has more than 20 (PDF) exchanges, market services and clearing houses. It is, to put it mildly, very influential in the world of finance. With its move into Bitcoin, institutional investors – hedge funds, family offices, sovereign wealth funds and other entities wishing to invest large sums of money – will probably follow. Many of these companies were interested in investing in Bitcoin and other cryptocurrencies, but they hesitated because there was no conventional market infrastructure.

There may be a reason why Bitcoin boosters are worried, however. According to Caitlin Long, a longtime Wall Street veteran who became a Bitcoin enthusiast, the financial industry's embrace could have negative repercussions, particularly if Wall Street companies treat the currency as more resources do. conventional. The potential problems stem from the fact that Bitcoin and Wall Street have "fundamentally different systems" for resource management, says Long, who spent 22 years working for various Wall Street companies and most recently served as president and president of Symbiont, a corporate blockchain company.

The difference is reduced to two key factors. First, while Bitcoin's (bitcoin) assets are directly owned and controlled by individual holders of their cryptographic keys, people who buy shares or other conventional assets generally do not own them: a centralized institution such as a stock exchange, a custodian or a clearinghouse What you actually "own" is an IOU of your broker or another financial institution.

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Second, while Bitcoin's blockchain is designed to prevent more than one person from owning a single asset, Wall Street companies routinely use the resources of their customers to support their transactions and transactions, such as using them as collateral to borrow from another company. This type of practice is a "standard operating procedure" on Wall Street, says Long, adding that as a result financial markets "create more credits towards an underlying asset than the underlying ones". The records used to track these claims may be out of sync shareholders in Dole Foods, for example, once it went to claim their premiums after a collective legal action against the company and found that they owned 33% more shares than those real.

This type of situation is "antithetical" for Bitcoin, Long argues, since it would compensate for the scarcity due to the algorithmic use of the currency. (The new bitcoins are created at a controlled rate, through the process of resource-intensive system extraction, and the total supply will never exceed more than 21 million.) This could suppress its price, and it is for this is what Long believes that if Wall Street companies choose to treat Bitcoin as "another asset they can trade" using their existing models to do business, they will make a big mistake.

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