According to UBS, the crypto winter will be a time when cryptocurrency prices crash and may take years to recover. The bank analyst also said the Fed reserve hikes and regulations might cause crypto to lose its appeal.
UBS, Switzerland’s largest bank, has warned of a crypto winter in which prices will plummet and may take years to recover. In a recent note to clients, the bank’s analysts, led by James Malcolm, detailed various reasons why crypto may lose its appeal to investors this year.
The reasons why crypto may lose its appeal
To begin, the UBS analysts explained that interest rate hikes by the Federal Reserve will limit the appeal of cryptocurrencies, such as bitcoin, too many investors who consider the asset class as a good alternative store of value.
Investors may not maintain bitcoin as a hedge against growing prices if central banks take steps to control inflation, according to analysts. They pointed out that government support was a crucial driver in cryptocurrencies’ price rises in 2020 and 2021.
This year, the Fed is likely to boost interest rates many times. The Federal Reserve may have to hike short-term interest rates more than four times this year, according to JPMorgan CEO Jamie Dimon. According to Goldman Sachs, the Fed will hike interest rates four times this year. “The Fed is going to have to hike many more times than what the market expects,” Wharton finance professor Jeremy Siegel said earlier this month.
Because of its high volatility, some investors are increasingly realizing that bitcoin is not “better money,” according to the UBS analysts. They also claimed that the cryptocurrency’s limited supply makes it inflexible as a medium of exchange. The researchers went on to say that due to its decentralized design, blockchain technology is difficult to scale.
Another big stumbling block for bitcoin, according to the UBS team, is legislation. The analysts warned that widespread bitcoin speculation “invariably attracts stronger monitoring to protect consumers” and “defend financial stability.” “High-flying stablecoins and defi [decentralized finance] projects appear almost certain to face bigger setbacks from authorities in the coming months,” they continued.
The Biden administration in the United States is apparently working on a government-wide policy for crypto assets. Furthermore, Gary Gensler, the chairman of the United States Securities and Exchange Commission (SEC), stated last week that regulating cryptocurrency exchanges is a major priority for the SEC.