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EU markets watchdog to look deeper into digital currency investments

Wednesday, April 22, 2015 - 20:19
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The European Union's markets watchdog is examining trading investments based on digital currency systems like bitcoin, saying it is unclear whether ownership is legally enforceable.

[LONDON] The European Union's markets watchdog is examining trading investments based on digital currency systems like bitcoin, saying it is unclear whether ownership is legally enforceable.

The European Securities and Markets Authority (ESMA) said the databases or "block chains" which record every transaction ever conducted in such cryptocurrencies were already being used to issue and trade some securities, bypassing regulated stock exchanges and central securities depositories.

A block chain shows at any given moment in time who owns how much of the virtual currency, which is not backed by any government or central bank.

"ESMA would like to find out more about these market developments and in particular to know to what extent the use of the block chain could enter the financial mainstream, and how it could be used," the watchdog said in a statement.

The sector came under regulatory scrutiny after the Silk Road online black market for drugs and other illegal transactions, was closed in 2013.

ESMA, due to have powers from 2017 to ban harmful financial products, said it has been monitoring and analysing virtual currency-based investments for six months.

Its "call for evidence" on Wednesday focused on investment schemes, derivatives like options, and contracts-for-difference (CFDs) that are based on a virtual currency or invest in virtual currency-related businesses.

It said it is also looking at assets such as shares and funds that are exclusively traded using block chains, and the application of block chain technology inside or outside virtual currencies.

Virtual currency-based assets or securities are created and transferred using software that operates on top of the bitcoin block chain.

"It is unclear whether and how ownership rights created via a block chain would be enforceable," ESMA said.

There is also no reliable information on who owns virtual currency-based financial assets, it added.

The watchdog said it had no pre-conceived view as to whether any other regulatory action is needed beyond the call for evidence and had "no immediate plans to take any".

It said the largest collective investment scheme has 116 million euros under management, with two regulated companies in Europe offering CFDs in bitcoins and litecoins.

Two funds have said they are domiciled in Europe but ESMA said it was "unclear" if that was in fact the case.

Eleven of the 17 identified virtual currency exchanges"seem" to be located in Europe, it added in its call for further information from the sector.

One bitcoin is currently worth around US$234.

REUTERS