UBS, the largest bank in Switzerland, warns of a crypto winter. The prices have collapsed and may not recover after many years. The bank’s analysts explained some of the main reasons that will affect the price of cryptocurrencies.
UBS predicts a crypto winter that could last for years
In a recent note to clients, the bank’s analysts, led by James Malcolm, reported to explain There are several reasons why cryptocurrencies could lose their appeal to investors this year.
First, a rate hike by the Federal Reserve will make cryptocurrencies like bitcoin less attractive to many investors who see the asset class as an alternative store of value.
Investors may choose not to hold bitcoin to protect against a price escalation as central banks take care of inflation, analysts say. They noted that government stimulus policies are the main drivers of crypto prices in 2020 and 2021.
The Fed is expected to raise interest rates several times this year. JPMorgan CEO Jamie Dimon recently said they may need to raise short-term rates more than four times in 2022, and Goldman Sachs is forecasting the same. Wharton finance professor Jeremy Siegel commented earlier this month:
“The Fed will have to raise many times more than the market expects.”
UBS analysts also claim that some investors are increasingly realizing that Bitcoin is not “better money” due to its high volatility. Additionally, the leading cryptocurrency’s limited supply makes it an inflexible currency. At the same time, blockchain technology is difficult to scale due to its decentralized design.
The UBS team pointed to another major hurdle for cryptocurrencies as regulation. Widespread crypto speculation, analysts warn, “certainly requires closer scrutiny over user protection and financial stability.”
“The explosive growth of stablecoin and DeFi projects will almost certainly face major obstacles from the authorities in the coming months.”
In the United States, the Biden administration is to design a comprehensive crypto strategy. In addition, US Securities and Exchange Commission (SEC) Chairman Gary Gensler said last week that regulating stock exchanges is a top priority for the SEC.
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