UBS, Switzerland’s largest bank, has warned about a crypto winter where prices crash and may not recover for years. The bank’s analysts explained several major reasons affecting the prices of cryptocurrencies.
UBS expects a crypto winter that could last years
Switzerland’s largest bank, UBS, has warned of a crypto winter where prices crash and may not recover for years. The bank’s 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 Reserve’s 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.
According to the analysts, bitcoin could be withdrawn by investors if central bankers move to curb inflation. The analysts noted that the government’s stimulus had been a major factor in driving up cryptocurrency prices between 2020 and 2021.
It is likely that the Fed will raise interest rates several more times this year. Jamie Dimon of JPMorgan stated recently that the Federal Reserve could have to raise short term interest rates four more times this year. Goldman Sachs expects that the Fed will raise interest rates by four times in 2019. Wharton’s finance professor Jeremy Siegel said earlier this month, “The Fed is going to have to hike many more times than what the market expects.”
The UBS analysts also claimed that some investors are increasingly realizing that bitcoin is not “better money” because of its high volatility. In addition, they said the cryptocurrency’s limited supply makes it inflexible as a currency. Due to its centralised design, blockchain technology can be difficult to scale.
Regulation is another obstacle for cryptocurrency, according to the UBS team. Widespread cryptocurrency speculation “inevitably invites closer oversight to guard consumers” and “protect financial stability,” the analysts warned. They elaborated, “high-flying stablecoins and defi [decentralized finance] projects seem almost sure to face bigger setbacks from authorities in the coming months.”
According to reports, the Biden administration in the U.S. is currently drafting a strategy that will govern crypto assets across the entire government. Gary Gensler (chairman of the U.S Securities and Exchange Commission) stated last week that regulation of crypto-exchanges was a priority for him.
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