Showing posts with label UBS. Show all posts
Showing posts with label UBS. Show all posts

November 08, 2017

Bitcoin Futures mirrors Tulip Bubble Crash - UBS Analyst

By Josiah Wilmoth - November 08, 2017 (

A UBS economist says that CME Group’s plan to launch bitcoin futures contracts mirrors Tulipmania in 17th-century Holland.

As CCN has reported, Chicago derivatives exchange operator CME Group has announced plans to provide its clients with bitcoin futures contracts before the end of the fourth quarter. In addition to luring Wall Street capital into bitcoin-related products, the creation of bitcoin futures will likely lead to the first commercially-available Bitcoin ETF.

However, not everyone is excited about bitcoin derivatives. UBS economist Paul Donovan told CNBC that he sees dangerous parallels between the structure of CME Group’s bitcoin futures and the crash of the Dutch tulip bubble in 1637.

The tulip bubble comparison has been hashed and rehashed on multiple occasions, and as CCN has explained in the past, it is inaccurate. However, Donovan introduces a new dimension to the argument by focusing his criticism on the similarity between the proposed bitcoin futures contracts and the tulip futures that contributed to the collapse of the tulip market in Holland.

Specifically, he points to the fact that the futures will be cash-settled rather than commodity-settled. Ordinarily, the way a futures contract works is that a buyer and a seller agree on a price for a commodity that will be delivered on a certain date. Professional traders buy and sell these contracts to place bets on the future value of the underlying commodities, and whoever owns a contract at its expiration receives physical delivery of the commodity.

However, CME’s bitcoin futures will be cash-settled, which means that cash will be delivered upon contract expiration rather than bitcoins. Donovan says this mirrors the creation of cash-settled tulip futures in Holland in 1636 – just one year before the tulip bubble popped.

“The idea of not physically delivering the product was rather shocking to contemporaries (as it turns out, the market crashed before bulbs could have been delivered anyway – bulbs were lifted in June 1637 for physical delivery). Traders met in groups (in taverns), called ‘Colleges.’ Think of the taverns as the cryptocurrency exchanges of their day,” Donovan said.

Donovan is not the only person at UBS to express skepticism about the future of bitcoin. Just last month, the investment bank published a research paper referring to bitcoin as a “speculative bubble”. Nor is he the only critic of CME’s launch of bitcoin futures. Themis Trading principal Joe Saluzzi said that the exchange was “playing with fire” and said that the products reminded him of the collateralized debt obligation (CDO) products that contributed to the 2008 financial crisis.

Posted by Josiah Wilmoth
Josiah is a former ancient and medieval literature teacher. He has been writing about cryptocurrency since 2014, and his work has been cited in Business Insider, NPR, and Yahoo! Finance. He lives in rural North Carolina with his wife and son. Email him directly at

October 28, 2017

Banking giant UBS CEO says Blockchain will ‘reshape’ banking

By Jon Buck - October 28, 2017 (

Sergio Ermotti, the CEO of Swiss banking giant UBS, told CNBC that he believes Blockchain technology will “likely reshape” the way that banks do business. UBS is already heavily invested in the new technology, partnering in the Batavia project with IBM, Bank of Montreal, and others.

The statement does not come as a surprise, as companies and institutions have been rushing into the Blockchain space in order to increase efficiency and decrease costs. According to Ermotti:

"Our strategy there is very simple. We try to initiate and get as many other financial institutions and clients into teams like trade finance with other banks and IBM was a successful venture…[allowing banks to] operate and transact at a cheaper, more efficient level.”

Hot on Blockchain, not Bitcoin

Though excited about the possibilities that Blockchain technology holds for the banking sector, the CEO was ambivalent toward Bitcoin. However, rather than taking a hardline anti-Bitcoin stance like his JP Morgan Chase counterpart, Ermotti simply dismissed Bitcoin, saying:

"Not necessarily cryptocurrencies, I think that needs to be defined, but I believe there is a future for blockchain technology, and technology will play a big role in changing and reshaping our industry."

October 21, 2017

Cryptocurrencies are a ‘speculative bubble’ - UBS

By Rebecca Campbell - October 21, 2017 (

UBS has said that cryptocurrencies like bitcoin are a ‘speculative bubble’ and are unlikely to become a mainstream currency. Yet, it believes the blockchain may have a ‘significant impact’ on many industries.

In a white paper titled ‘Cryptocurrencies – Beneath the Bubble‘ that was published this week, UBS said:

"We think the sharp rise in cryptocurrency valuations in recent months is a speculative bubble".
The bank added that it was ‘doubtful cryptocurrencies will ever become a mainstream means of exchange.’

"The need for companies and individuals to pay tax receipts in government-issued currency, and the potentially unlimited crypto-money supply, pose significant barriers to widespread adoption".

According to UBS, bubbles occur when there is something new, or relatively new, in the economy, which creates uncertainty, and a delay in real-world returns. It cites the Dutch tulip bubble in the seventeenth century, the Mississippi and South Sea bubbles in the eighteenth century, and the dot com bubble in the 1990s. UBS believe that digital currencies fall into the bubble category.

"Cryptocurrencies are relatively new. The real world benefits are said to take years to materialize, even among evangelists. And the relatively high volume of cryptocurrency turnover, against limited real-world use, suggests that many buyers are seeking speculative gain, never intending to use cryptocurrencies to make a real-world transaction".

Earlier this month, Sergio Ermotti, the CEO of UBS, said that wealthy investors are curious about the digital currency market, but are not ready to make significant investments. The bank joins critics such as Jamie Dimon, JPMorgan CEO, who claimed last month that bitcoin was ‘a fraud.’

Despite the fact that UBS doesn’t appear to favour digital currencies such as bitcoin, it is regarding the blockchain in a more positive light.

So much so that UBS believe that the distributed ledger will lead to ‘significant impact’ within industries such as finance, manufacturing, healthcare, and utilities. UBS are claiming that this could add as much as $300-400 billion of economic value by 2027.

The note added:

"Investing in the blockchain wave is akin to investing in the Internet in the mid-nineties".

For the time being, though, shortcomings will need to be addressed with the technology, UBS said.

Featured image from Shutterstock.