Rand Paul loves to present himself as a political pioneer. This week, however, the Kentucky senator and darling of the Tea Party is carving out new frontiers in finance. Announcing a 2016 presidential bid on Tuesday, he said he would collect donations via bitcoin. That makes him the first US politician to raise funds using thecryptocurrency. The move is likely to be wildly popular with his libertarian supporters, given the Republican party’s deep suspicions of fiat currency and the US Federal Reserve.
But there is another bitcoin saga that investors should watch. Behind the scenes Wall Street financiers, too, are embarking on market experiments — not in relation to the retail payments or donations with which bitcoin is normally associated but rather the wholesale financial world. Notably, initiatives are being launched to use bitcoin for back-office financial markets settlements. And, while they are at an early stage, they could become important; not least because they are attracting support from wealthy investors.
To understand what is going on, think for a moment about the six-year-old bitcoin technology. Cryptocurrencies are often described in popular culture, and by Mr Paul’s Tea Party followers, as “electronic money”. But it is better to visualise them as financial ledgers — a public record book that keeps track of how many units of the currency each user’s bitcoin “wallet” contains.