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UBS, Switzerlandâs largest bank, has warned about a crypto winter where prices crash and may not recover for years. The bankâs analysts explained several major reasons affecting the prices of cryptocurrencies.
UBS Expects Crypto Winter That Could Last Years
Switzerlandâs largest bank, UBS, has warned of a crypto winter where prices crash and may not recover for years. The bankâs analysts, led by James Malcolm, recently explained in a note to clients several reasons why cryptocurrency may lose its attractiveness to investors this year.
Firstly, the UBS analysts detailed that the Federal Reserveâs interest rate hikes are set to reduce the appeal of cryptocurrencies, such as bitcoin, for many investors who see the asset class as a good alternative store of value.
The analysts added that if central banks move to get a handle on inflation, investors may not be holding bitcoin as protection against rising prices. They noted that government stimulus was a key factor boosting the prices of cryptocurrencies in 2020 and 2021.
The Fed is expected to raise interest rates several times this year. JPMorgan CEO Jamie Dimon recently said that the Federal Reserve might have to raise short-term interest rates more than four times this year. Goldman Sachs similarly expects the Fed to raise interest rates four times this year. Whartonâs finance professor Jeremy Siegel said earlier this month, âThe Fed is going to have to hike many more times than what the market expects.â
The UBS analysts also claimed that some investors are increasingly realizing that bitcoin is not âbetter moneyâ because of its high volatility. In addition, they said the cryptocurrencyâs limited supply makes it inflexible as a currency. The analysts further stated that blockchain technology is hard to scale because of its decentralized design.
Another major hurdle for cryptocurrency is regulation, the UBS team described. Widespread cryptocurrency speculation âinevitably invites closer oversight to guard consumersâ and âprotect financial stability,â the analysts warned. They elaborated, âhigh-flying stablecoins and defi [decentralized finance] projects seem almost sure to face bigger setbacks from authorities in the coming months.â
In the U.S., the Biden administration is reportedly drafting a government-wide strategy for crypto assets. Furthermore, the chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, said last week that regulating crypto exchanges is a top priority for the SEC.
What do you think about the warning by UBS? Let us know in the comments section below.
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