Greg Medcraft, the chairperson of Australia's corporate regulator, the Australian Securities and Investments Commission, believes that the blockchain technology employed by Bitcoin has the potential to dramatically change the global financial system.
Blockchain technology "has potential to fundamentally change our markets and our financial system," Medcraft said in remarks prepared for a speech at the Adelaide campus of Carnegie Mellon University.
Bitcoin's blockchain acts as a decentralised register of all transactions involving the cryptocurrency (the technology is also employed by currencies based on Bitcoin, such as Litecoin).
The ASIC chairperson said he saw four ways in which blockchain technology could potentially transform capital markets.
Potentially the technology could improve the speed and efficiency of transactions, he said.
"At present, when investors buy and sell debt and equity securities or transact derivatives, they generally rely on settlement and registration systems that take sometimes several days to settle trades. It can take even longer, sometimes, where the trade involves cross-border parties," Medcraft said.
"Blockchain holds potential to automate this whole process."
The second change is the potential disintermediation of transactions.
"Blockchain automates trust; it eliminates the need for 'trusted' third-party intermediaries," the ASIC chairperson said.
"In the traditional market, buyers and sellers can't automatically trust each other, so they use intermediaries to help give them the comfort they need.
"With blockchain, the decentralised ledger offers this trust. Investors can deal with each other and with issuers in private markets directly."
The technology could also reduce transaction costs, the ASIC chairperson said.
"By eliminating the need to use settlement and registration systems and other intermediaries, there is significant potential to reduce transaction costs for investors and issuers," Medcraft said.
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"A June report backed by Santander InnoVentures, the Spanish bank’s fintech investment fund, estimated that blockchain could save lenders up to $20 billion annually in settlement, regulatory, and crossborder payment costs."
Finally, it was possible that the technology could improve market access.
"Because of the global nature of blockchain, global markets have the potential to become even more easily accessible to investors and issuers; therefore making it easier for investors and for issuers to invest in and issue debt and equity securities," Medcraft said.
The blockchain "potentially has profound implications for our markets and for how we regulate," Medcraft said.
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"As regulators and policymakers, we need to ensure what we do is about harnessing the opportunities and the broader economic benefits – not standing in the way of innovation and development.
"At the same time, we need to mitigate the risks these developments pose to our objectives. We also need to ensure those who benefit from the technology trust it. And, at the end of the day, we are working to ensure that investors and issuers can continue to have trust and confidence in the market."
Earlier this year a Senate inquiry recommended a major shift in the regulatory treatment of digital currencies such as Bitcoin in Australia.
The change would remove what advocates of Bitcoin have claimed is a major regulatory barrier to the success of Australian businesses based on the crypto-currency.
The headline recommendation of the inquiry's report would significantly alter how the Australian Taxation Office treats Bitcoin. Currently the ATO does not treat Bitcoin as a form of currency.
Instead, transactions involving bitcoin are treated as a form of barter.
The government is yet to respond to the report.
Earlier this year, Westpac invested in bitcoin-focussed startup Coinbase via Reinventure, a $50 million VC fund whose largest investor is the bank.
It was revealed earlier this week that the Commonwealth Bank had joined with a group of eight other major banks in a partnership that seeks to leverage blockchain technology.
Medcraft said that ASIC would continue to analyse how new developments, such as blockchain technology, fit into the current regulatory framework for financial markets and identify where changes may be required.