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Blockchain Investment Dropped 60% in 2019 despite Bitcoin's Bullish Run

Blockchain investment dropped 60% from a record 4.1 billion in 2018 to 1.6 billion this year, according to the findings of CB Insights reported on 18 July.

Blockchain’s meteoric rise slowed in 2019

Source: CB Insights

As seen in from the graph above, traditional venture capital firms invested $784 million into blockchain companies in 227 deals. Despite tech giants such as Facebook are developing their own digital currencies, capital inflow from corporations is on “an even sharper decline”. This has significant implications for Silicon Valley and Wall Street since blockchain startups from the U.S used to be one of the main beneficiaries of venture capital since 2014.

A review of 33 projects by more than a dozen executives in large corporations shows that blockchain technology has not fulfilled its promise. Many companies realized blockchain technology will likely take years before there is mass adoption.

A UBS-backed project on the digital cash system called “Utility Settlement Coin” is expected to be launched next year after more than five years of work. The head of the UBS-backed project, Rhomaios Ram said, “there is a recognition now that it is a journey, rather than something with a short time frame.”

Thumbnail image via Shutterstock

Gold Prices Rally Higher While Bitcoin Fails to Reach $11,000, What’s Next for BTC?

While gold prices have recorded an all-time high this year, surpassing $2,000 per ounce, prices have dipped again lately. However, UBS Global Wealth Management suggested that investors should be putting their money in gold now. As gold and Bitcoin (BTC) have had a high correlation in the past, both seen as a hedge against risks, what would this mean for the world’s largest cryptocurrency?

According to UBS Global Wealth Management, gold represents a “very good hedge” against events that may cause the markets to be volatile, such as the upcoming US election. Kelvin Tay, UBS regional chief investment officer said:

“We like gold, because we think that gold is likely to actually hit about $2,000 per ounce by the end of the year. And gold has certain hedges to it. In (the) event of uncertainty over the U.S. election and the Covid-19 pandemic, gold is a very, very good hedge. And its recent weakness represents a great entry point for investors.”

Tay added that gold is an attractive asset due to the low interest rate environment, especially after the Fed indicated that the interests will stay low.

As for the traditional markets, US stock futures slid lower today, ahead of the first presidential debate, after Monday’s rally. David Waddell, the CEO of Waddell & Associates commented:

“I think we’re in a sideways period. It’s just we’re going to do it like we’re on a trampoline.”

The traditional markets have reacted ahead of the first US presidential debate tonight, between President Donald Trump and Joe Biden, and Wall Street analysts believe that political news this week could be a major driver of market movements.

Bitcoin has been failing to surge past the $11,000 resistance level and has been trading sideways around $10,700 at the moment. Bitcoin has been showing signs of decoupling from the traditional markets, while Wall Street stocks rallied yesterday, Bitcoin has failed to deliver.

Precious metal gold has also seen a slight rally of its own, breaking its correlation with Bitcoin, surging from $1,850 per ounce to over $1,880 today.

Last week, on-chain analyst Willy Woo predicted that Bitcoin (BTC) will soon decouple from the stock market. Woo explained that if a massive stock market crash were to occur, Bitcoin and the stock market would eventually break its correlation.

WEF: Blockchain Can Drive Sustainable Digital Finance for a Low-Carbon Economy

The World Economic Forum (WEF) has highlighted blockchain technology as one of the key emerging technologies that can drive sustainable digital finance and create a low-carbon economy.

Speaking at the WEF’s Green Horizon Summit on Nov. 11, UBS Chief Operating Officer, Personal and Corporate Banking, Karin Oertli said that blockchain technology, big data, artificial intelligence (AI), mobile platforms, and the Internet of Things (IoT) are essential to foster digital finance.

Oertli noted that sustainable digital finance can take advantage of these emerging technologies as tools to analyze data, power investment decisions, and grow jobs in sectors supporting a transition to a low-carbon economy. The finance expert believes that through the operation model of blockchain technology in transparently storing transactions in public ledgers, corporations or enterprises adopting the technology can have access to open digital finance data.

According to Oertli, technologies like AI, machine learning, and natural language processing can be used to both generate and evaluate such data as presented by blockchain in a bid to help businesses “increase energy efficiency, reduce overall energy consumption or expand the use of renewable energies.”

Blockchain Technology Finding Home in Environmental Sustainability Drive

The application of blockchain technology has consistently been drafted in environmental sustainability drive. As Blockchain.news reported back in September 2019, blockchain technology was unleashed at the United Nations General Assembly on Global Crises.

Per the reports, Greta Thunberg, a 16-year-old Global Climate activist delivered a compelling speech at the 73rd United Nations General Assembly (UNGA) on how businesses and political involvement have stolen her dreams by the lack of response to the crisis. Amongst other things, Thunberg advocated for the development of blockchain to combat climate change challenges.

Enterprises and private businesses have also been nudged to combat climate change through the adoption of tools such as KPMG’s blockchain-based Climate Accounting Infrastructure (CAI)

Cryptocurrencies’ Fixed Supply Will Hinder Their Functionality as Actual Currencies, says UBS Economist

Cryptocurrencies have emerged as the new kid on the block in the financial scene, leading to divergent opinions. Paul Donovan, the chief economist at UBS Global Wealth Management, believes that cryptocurrencies hold a fundamental flaw as their supply cannot be slashed whenever demand flops in most cases.

Cryptocurrencies cannot be manipulated

Donovan argued that a “proper currency” should allow central banks to manipulate its supply so that an equilibrium can be restored whenever demand slumps. He noted:

“A proper currency can be a stable store of value, providing certainty that it will be able to buy the same basket of goods tomorrow as it buys today. That confidence is derived from central banks’ ability to reduce supply when demand is falling.”

Donovan alluded to the fact that cryptocurrencies cannot be influenced by switching off their supply. Notably, one of the factors that attract pundits and investors to the crypto sector is the autonomy created by cryptocurrencies as they shun governmental control.

Spending power

The chief economist also delved into the issue of cryptocurrencies’ spending power whenever their value plummeted. He explained:

“People are unlikely to want to use something as a currency if they’ve got absolutely no certainty about what they can buy with that tomorrow.”

The crypto market has nosedived in the last 24 hours after BitMex Research started a Bitcoin (BTC) double spend rumor of around $21. This false information sent Bitcoin price to a low of $28,953, and Grayscale investment saw this as the opportunity to buy the dip and added BTC worth $1.2 billion to its portfolio.

Bitcoin has, however, surged past the $30,000 mark and is trading at $30,581 at the time of writing. Ethereum has also been down by 14.02% in the last 24 hours and hovering around the $1,129 price at press time, according to CoinMarketCap.

Swiss Banking Giant UBS to Offer Crypto Services to its Clients

Switzerland-based banking firm, UBS Group is looking at several options to bring cryptocurrency-based investments to its rich clients.

According to a Bloomberg report on the matter, the company is reportedly considering crypto investments as a response to the demand from its customers.

The move comes at a time when cryptocurrencies are gaining massive traction among retail and institutional investors. The crypto space has moved from obscurity into the mainstream, a development that is marked by a market capitalization of over $2.3 trillion. According to the cited sources, the potential move by UBS to offer crypto investments is in its effort to remain competitive and prevent its rich clients from seeking similar products from competitors already offering those services.

“We are monitoring the developments in the field of digital assets closely,” UBS said in a statement. “Importantly, we are most interested in the technology which underpins digital assets, namely the distributed ledger technology.”

Per the reports, the cryptocurrency investment option UBS is planning to offer to only take a fraction of its client’s net worth, in order to shield investors from the extreme volatility of the digital currency ecosystem. One of the options that are billed to be explored is investments through third-party investment vehicles.

While the UBS crypto investment move will be welcomed if it is fully confirmed, the bank appears to be a bit late to the party. Global competitors Goldman Sachs and Morgan Stanley are already exploring crypto options in response to an acknowledged shift in broader crypto demand. While Goldman Sachs is on track to offer a Bitcoin service and is looking to hire a new VP to expand its digital asset offerings, Morgan Stanley ranked as the first major bank to offer Bitcoin funds to its clients.

The UBS plans will not be a misstep, with many market experts projecting a continuous growth in retail and institutional demands for cryptocurrency-based products.

Central Banks Doubt Cryptocurrency Limited Role in Reserve Operations

According to a Swiss-based UBS investment bank survey, central banks are sceptical to cryptocurrencies and supplant gold as a safe store of value.

UBS’s research surveyed 30 major central banks. The study shows that almost 85% of central bank reserve managers do not expect crypto-assets to replace gold in their currency reserves.

Furthermore, over 25% of the central bankers stated that Bitcoin and other cryptocurrencies have the markings of investment, potentially as uncorrelated assets which do not move in tandem with other markets. The study further shows that 57% of those polled mentioned that they do not expect crypto tokens to impact their reserve operations significantly.

However, analysis like Joshua Scigala, Co-Founder of decentralised crypto finance project TheStandard.io, disagree with central banks’ stance on the role of cryptocurrencies, he said:

“When I hear Central bankers state that they don’t see much role for cryptocurrencies as a store of value over gold, it shows a complete lack of understanding. Cryptocurrencies are incredibly diverse and enable many functions that will leave central banks looking like dinosaurs if they do not keep up.”

Yet, there is a different story as several crypto advocates see cryptocurrencies as a way to preserve the value of their savings at a time when central bankers across the globe unveiled massive stimulus packages to fight the COVID-19 pandemic amid rising fear of higher inflation.

Meanwhile, cryptocurrency volatility has distanced several traditional investors from the asset class and affected its attraction as a stable store of value. Luke Sully, CEO at treasury technology specialist Ledgermatic – a company that allows corporates to hold and use cryptocurrencies compliantly, explain:

“Bitcoin as a foreign currency reserve cannot be publicly supported by any central bank for one simple reason; that it is not controlled by any nation-state. Aside from El Salvador, which recently permitted bitcoin as legal tender in the country, it’s mostly used by investors – retail and institutional – as a high-risk investment. “

Central bankers’ cautious sentiment comes when the crypto industry’s growth has exploded in recent years and has prompted regulators to contemplate more seriously how to regulate such assets and to what extent they should play a role in their operations.

While central bankers have doubts about the role of private crypto assets, they are increasingly confident about the prospect of the Central Bank Digital Currencies.

The research shows that central bankers are optimistic about the outlook of CBDCs as they consider how to respond to the booming of the crypto sector. More than 80% of central bank reserve managers stated that they expect such institutions to develop CBDCs directly accessible to consumers over the next five years.

Officials surveyed said that central bankers’ motivation to pursue their digital currencies is to enhance the retail payment system and upgrade the broader financial infrastructure, including major functions like clearing and regulations. They also mentioned that CBDCs could assist in reducing money laundering and crime.

CBDC As Opportunity for The Monetary System

Central bankers are accelerating their work on CBDCs’ development, and investors are making observations.

About 80% of central banks are researching the use cases involving CBDCs, with 40% (such as China, Australia, Singapore, Japan, Thailand, and others) already testing proof-of-concept programs.

Facebook-based cryptocurrency Diem is motivating several central banks to create CBDCs. Diem, formerly Libra, formed a partnership with Silvergate bank to test the US dollar-pegged stablecoin later this year.

The creation of Diem has been regarded as a catalyst for China to accelerate its plans for its digital yuan issued by the country’s central bank.

China is close to launching its CBDC and is testing the digital yuan with commercial institutions and the public. The country maintains plans of establishing itself as a key player in the emerging global digital currency market.

In contrast, the US Federal Reserve is taking a more cautious approach to issue a Central Bank Digital Currency with no robust commitment to date.

Cambodia and the Bahamas are the only countries that have so far launched their CBDCs for public use.

SWIFT Releases Blueprint for Global CBDC Operation

As the majority of the world’s Central Banks are now developing or researching the prospects of Central Bank Digital Currencies (CBDCs), the Society for Worldwide Interbank Financial Telecommunications has detailed how these individual CBDCs can co-exist in a global setting.

As detailed by SWIFT‘s head of innovation Nick Kerigan, the trial involved as many as 14 central and commercial banks, including the Deutsche Bundesbank, Banque de France, Standard Chartered, UBS, and HSBC saw all these participating entities connect through a single hub.

“We believe that the number of connections needed is much fewer,” Kerigan said. “Therefore, you are likely to have fewer breaks (in the chain) and you are likely to achieve greater efficiency.”

The trial is billed to be followed by more detailed and specific testing in the coming months, with additional perspectives set to be investigated.

SWIFT is an electronic system that allows banks all over the world to send information and payments to each other, following its 8-month investigation into the cross-border transaction capabilities of CBDCs concluded that a single viable central connection can suffice in keeping all of the individual e-fiat notes together.

While SWIFT has a very viable proposal to connect CBDCs the way it has connected financial players transacting using fiat and digital money, the body may have an unexpected rebuttal to deal with.

With the outbreak of the war between Russia and Ukraine, SWIFT blocked financial institutions from Russia in compliance with broader financial sanctions from Western watchdogs. This move may prevent some Central Banks from linking their CBDCs to the SWIFT system for any likely instance of censorship in the future.

While this fear remains a viable one, Kerrigan believes the focus for partners will be different.

“Ultimately, what most central banks are looking to do is to provide us with a CBDC for the people, the businesses and the organisations in their jurisdiction,” he said, “So a solution that’s fast and efficient and that gains access to as many other countries as possible would seem to be an attractive one.”

Swiss regulators consider UBS takeover of Credit Suisse to prevent collapse

UBS would be able to reduce the size of Credit Suisse’s investment bank as a result of the purchase, with the combined firm constituting no more than a third of the newly combined business. A merger between UBS and Credit Suisse would result in the creation of one of the biggest and most systemically significant financial institutions in Europe. UBS has total assets on its balance sheet worth $1.1 trillion, while Credit Suisse has total assets at $575 billion.

Bypassing the typical Swiss regulations that call for a six-week consultation period during which shareholders can express their opinions on an acquisition, the emergency measures that are currently being considered would make it possible for the transaction to move forward without the approval of the company’s shareholders. Reportedly, the SNB and FINMA are aiming to secure a regulatory agreement by the end of the day on Saturday in order to conclude the purchase before to the opening of markets on Monday.

Credit Suisse has been shaken by a slew of financial scandals, the most notable of which are the failure of Greensill Capital, which had a portfolio worth $10 billion with Credit Suisse, and the loss of $4.7 billion as a result of the failure of family office Archegos Capital Management. In addition to this, legal action may be taken against the bank because of its part in the fall of supply chain financing company Lex Greensill’s corporate empire.

The Swiss National Bank (SNB) and the Swiss Financial Market Supervisory Authority (FINMA) had previously issued a joint statement on March 15, stating that Credit Suisse met the requirements imposed on systemically important banks regarding their capital and liquidity, and that should it be required, the SNB would provide Credit Suisse with liquidity. But, the authorities now feel that the only option to avert a complete collapse in trust in the bank is for UBS to purchase Credit Suisse.

The announcement of this news comes after the United States-based investment firm BlackRock indicated in a tweet on March 18 that it is not interested in purchasing Credit Suisse.

BOCI and UBS Partner to Issue First Tokenized Security in Hong Kong

BOCI, a leading Chinese financial institution, has issued the first tokenized security in Hong Kong, reaching a milestone in digital finance. The CNH 200 million fully digital structured notes, originated by UBS, have been placed with clients in Asia Pacific, indicating a significant collaboration between BOCI and UBS in the digital structured notes arena.

This development comes after UBS’s issuance of a USD 50 million tokenized fixed rate note in December 2022, under English and Swiss law, on a permissioned blockchain. The latest venture takes a step forward, marking the first product of its kind in Asia Pacific, constituted under Hong Kong and Swiss law, and tokenized on the main Ethereum blockchain.

Both BOCI and UBS are pioneering the use of blockchain technology to enhance efficiency in high-frequency issuance activities. Ms Ying Wang, Deputy CEO at BOCI, expressed the institution’s dedication to driving the simplification of digital asset markets and products through blockchain-based digital structured products. She also highlighted BOCI’s commitment to promote the digital transformation of Hong Kong’s financial industry.

Meanwhile, UBS continues to broaden its tokenization services, targeting structured products, fixed income, and repo financing through its UBS Tokenize platform. Aurelian Troendle, Global Head of MTN Trading at UBS AG, emphasized the potential benefits blockchain technology can offer to investors.

This milestone achieved by BOCI and UBS signals a new era of digital securities, paving the way for further innovations in the field.

UBS and OSL Pioneer Hong Kong's First Ethereum Tokenized Warrant

UBS AG’s recent announcement heralds the launch of Hong Kong’s first-ever investment-grade tokenized warrant, leveraging the Ethereum public blockchain network. This pioneering product, a call warrant with Xiaomi Corporation as the underlying asset, signifies the fusion of conventional financial mechanisms with the avant-garde blockchain technology, potentially reshaping the landscape of digital finance.

This innovative tokenized warrant, sold to OSL Digital Securities Limited, represents the first of its kind to be natively issued on a public blockchain, underscoring a significant evolution in the realm of financial derivatives. The collaboration between UBS and OSL, a subsidiary of OSL Group, emphasizes the growing synergy between traditional banking institutions and the burgeoning field of digital assets.

Winni Cheuk, Head of Sales at UBS Global Markets, APAC Public Distribution, and Patrick Pan, CEO of OSL Group, both highlighted the myriad benefits introduced by this novel product. These include enhanced transparency, reduced transaction fees, streamlined settlement processes, and extended trading hours, all facilitated by the underlying blockchain technology. The tokenized warrant utilizes smart contracts to automate and optimize trading and administrative tasks, thereby increasing efficiency and lowering operational costs.

The tokenization of financial products by UBS is not a new venture; the bank has been actively exploring and implementing blockchain solutions since 2015. In 2022, UBS issued a $50 million tokenized fixed rate note to its Asia Pacific clients through its UBS Tokenize platform, further demonstrating its commitment to digital asset innovation. The issuance of the tokenized warrant in collaboration with OSL Digital Securities marks a continuation of UBS’s endeavors to expand its digital asset capabilities and explore new avenues for financial products in the blockchain domain.

This initiative not only fortifies UBS’s standing as a leader in derivative products in Hong Kong but also signifies a major milestone in the regulated virtual asset landscape. By pioneering the issuance of an investment-grade tokenized financial product, UBS and OSL are setting a precedent for the future of financial innovation, opening up new possibilities for accessibility, efficiency, and transparency in the digital finance sector.