CME's plan for bitcoin futures mirrors moment just before the 1637 tulip bubble crash, UBS says

CME's plan for bitcoin futures mirrors moment just before the 1637 tulip bubble crash, UBS says
UBS economist Paul Donovan said plans for bitcoin futures contract mirror the situation just before the tulip bubble burst in the 1600s
CME Group announced plans to introduce bitcoin futures contracts, pending regulatory approval
The price of bitcoin soared above $7,000 to hit a new record high

CME Group announced plans for bitcoin futures contracts earlier this week, a move that UBS analyst Paul Donovan has compared to the introduction of a similar product just before the tulip bubble burst in the 1600s.

The tulip craze in the Netherlands in the 17th century saw the price of the flower skyrocket. This resulted in a crash of that market in 1637.

In 1636, cash-settled futures were introduced in the tulip market. A futures contract is one where a buyer and seller will agree a price for a commodity that will be delivered on a certain date. This previously meant that the physical product had to be delivered. But cash-settled futures contracts allow cash to be delivered upon expiration.

This method was used during the tulip bubble and a year later in 1637, the market crashed.

The CME Group said earlier this week that it plans to launch bitcoin futures in the fourth quarter, pending regulatory review. Those futures will be based on cash settlement too.

Donovan, wealth management global chief economist at UBS, said: "We've been here before."

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Last Edited by BullionDude on 11/02/2017 10:17 AM