UBS, Switzerland’s largest bank, has warned of a crypto winter in which prices will plummet and may not recover for years. The bank’s analysts explained several main reasons affecting cryptocurrency prices.
UBS expects crypto winter that could last for years
Switzerland’s largest bank, UBS, has warned of a crypto winter in which prices will plummet and may not recover for years. In a recent note to clients, the bank’s analysts, led by James Malcolm, detailed several reasons why the cryptocurrency could lose some of its appeal to investors this year.
First, UBS analysts stated that Federal Reserve rate hikes will make cryptocurrencies like bitcoin less attractive to many investors who see the asset class as a good alternative store of value.
The analysts added that investors may not hold Bitcoin as a hedge against rising prices as central banks try to rein in inflation. They found that government stimulus was a key factor in boosting cryptocurrency prices in 2020 and 2021.
The Fed is expected to raise interest rates several times this year. JPMorgan CEO Jamie Dimon recently said the Federal Reserve may have to raise short-term interest rates more than four times this year. Goldman Sachs also expects the Fed to hike rates four times this year. Wharton’s finance professor Jeremy Siegel said earlier this month, “The Fed will have to rise a lot more times than the market is expecting.”
UBS analysts also claimed that due to its high volatility, some investors are increasingly realizing that bitcoin is not “better money.” Additionally, they said that the cryptocurrency’s limited supply makes it inflexible as a currency. The analysts further stated that blockchain technology is difficult to scale due to its decentralized design.
Another major hurdle for cryptocurrencies is regulation, the UBS team described. Widespread cryptocurrency speculation “inevitably invites closer surveillance to protect consumers” and “protect financial stability,” the analysts warned. They explained: “Soaring stablecoins and defi [decentralized finance] Projects almost certainly appear to suffer major backlash from the authorities in the coming months.”
In the US, the Biden administration is reportedly drafting a government-wide strategy on crypto assets. Additionally, US Securities and Exchange Commission (SEC) Chairman Gary Gensler said last week that regulating crypto exchanges is a top priority for the SEC.
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As an Austrian economics student, Kevin discovered Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the interface between economics and cryptography.
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