Like many innovations that preceded it, blockchain trading – the use of a digitalized ledger to trade bitcoin and other cryptocurrencies in a decentralized manner – has generated skepticism and anxiety among various market participants. Although bitcoin has been trading for many years, its use is illegal in some countries and has drawn criticism from regulators even where it is legal. Despite this, bitcoin traded at record highs in 2017 and looks poised to climb even higher in 2018. These developments do not come without any downside, however. Blockchain technology stands to streamline certain administrative and auditing functions, thereby threatening to knock some traditional businesses out of the market. The highly particular way in which bitcoin trades – with a single individual possessing the ability to move and transfer enormous sums instantaneously – also poses special security risks. Further, the perception that bitcoin is reaching, or has reached, a precarious “bubble” may not be wholly unfounded. To help readers understand these issues and formulate an approach to the new technologies in the months to come, the Hedge Fund Law Report has interviewed Karl Cole-Frieman, a founding partner of boutique law firm Cole-Frieman & Mallon and an expert on the evolving blockchain and bitcoin markets. This article presents Cole-Frieman’s insights. See our three-part series on blockchain and the private funds industry: “Basics of the Technology and How the Financial Sector Is Currently Employing It
” (Jun. 1, 2017); “Potential Uses by Private Funds and Service Providers
” (Jun. 8, 2017); and “Potential Impediments to Its Eventual Adoption
” (Jun. 15, 2017). For prior commentary from Cole-Frieman, see “Who Should Newly Registered Hedge Fund Managers Designate As the Chief Compliance Officer, and How Much Are Chief Compliance Officers Paid?
” (Feb. 25, 2011).